Economist, presumably including those at the Bank of Japan and the Swiss National Bank, are baffled by the persistent strength of their respective currencies. In fact, it seems the more each bank acts to weaken their currencies, the stronger each currency becomes. This makes the CHF/JPY a particularly interesting cross for traders. All else aside, because of respective monetary policy, each currency is being pressured to weaken; perhaps best describes as similar to a compressed spring. Hence, it may be reasonable to come to the conclusion that the downside of the cross is meeting with increasingly stiffer resistance. Further, each bank may be losing patience with measured policy steps. The SNB already utilizes a direct intervention policy tool and it has been speculated that the BOJ is on the verge of doing so. The Bank of Japan’s governor, Mr. Haruhiko Kuroda has, if anything, managed to keep markets on the back foot by announcing actions contrary to market expectations at times. On the other hand, the SNB had caused market turmoil in early 2015, but once the SNB unwound its Euro peg it has remained range-bound against the Euro: resistance at about CHF 1.115, support CHF 1.10788. The Yen, on the other hand has steadily gained on the Euro from a June 2015 1 year low of ¥140.318 to ¥123.14 very near its 1 year high. The chart below demonstrates the comparison: EUR/CHF in a channel whilst EUR/JPY in a Yen strengthening trend.

comparison

Over the past year, the Yen saw its weakest vs the Franc, at ¥134.008 per, in June of 2015; just about the same time it saw its weakest vs the Euro. In the monetary policy assessment statement of June 2015, the SNB reiterated its intent to weaken the currency through its continuing negative rate policy . “...Negative interest rates in Switzerland make holding investments in Swiss francs less attractive and will help to weaken the Swiss franc over time. Overall, the Swiss franc is significantly overvalued. The SNB takes account of the exchange rate situation, and its impact on inflation and economic developments, in formulating its monetary policy. It will therefore remain active in the foreign exchange market, as necessary, in order to influence monetary conditions...” It’s important to note that the directness of language in the statement may have been designed to support the Swiss position that the decoupling move was necessary to protect the Swiss economy and not specifically against the Euro. SNB officials have repeatedly indicated the SNB intent to return to CHF 1.20 per Euro but as a free floating Franc. The BOJ could not possibly be that blunt in their policy statements without having its major regional trade partners in an complete uproar.

CHFJPY price event chart

At the BOJ 2015, 19 June meeting, the Policy Board voted to maintain its ongoing QQE policies . However, the respective September 2015 meetings, the SNB clearly noted that its policy remained unchanged whilst the BOJ had increased its asset purchases; a small step but towards further weakening . “...The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen. With a view to encouraging a decline in interest rates across the entire yield curve... ...The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 3 trillion yen and about 90 billion yen respectively...”

The Yen did weaken slightly vs the Franc, however, it soon resumed its strengthening trend. The last policy assessment meeting for the SNB was held in December of 2015. “...the SNB will remain active in the foreign exchange market in order to influence the exchange rate situation, as necessary. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are intended to ease pressure on the Swiss franc...” At the corresponding BOJ meeting , policy was expanded slightly. “...The average remaining maturity of the Bank's JGB purchases will... ...be extended to about 7-12 years from the beginning of next year...” Hence a slight easing and again, hardly a reaction in the CHF/JPY cross. It should be noted that there was some speculation beforehand, that the BOJ would take action at the December meeting, which it did, but to a small degree. However, it wasn’t enough for markets to sell Yen and the trend resumed soon after.It wasn’t until 29 January of this year that the BOJ took another major policy action by introducing a tiered policy structure , the top tier being assigned a negative deposit rate. It should be noted that the BOJ cited other negative policy tier rates, including that of the SNB. “...The Bank will apply a negative interest rate of minus 0.1 percent to current accounts that financial institutions hold at the Bank It will cut the interest rate further into negative territory if judged as necessary... ...The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen... ...The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 3 trillion yen and about 90 billion yen, respectively...” 
 
Although the negative rate dimension appeared to be modest, the fact that the BOJ increase its asset purchase program, again, added some weight to the action. Amazingly, the Yen continued to strengthen vs most majors as well as the Euro and Franc. The yen achieved its 52 week best on the Franc 23 February at 112.901; a 15.75% gain since the June low.

At the recent 17 March meeting , the SNB indicated that the intervention and easing and negative rate policy would remain in place for some time to come. “...The global economic outlook has deteriorated slightly in recent months and the situation on international financial markets remains volatile... ...In the medium term, the main factors dampening inflation are the globally low inflation levels and the lacklustre outlook for the global economy...”

CHF/JPY seems to have fallen into a narrow range with ¥112.87 support and ¥117.71 resistance. It’s unlikely, but not out of the question for the SNB to weaken further. It would more likely intervene, quietly and maintain the Franc in its current range. As to what degree might well depend on the ECB. The BOJ, on the other hand, may be forced to act quickly and decisively to convince markets that the increasing strength of the Yen is negatively affecting the Japanese export economy and unwelcome. 

Hence, it isn’t too far fetched that the Yen could strengthen further, however, the BOJ might already have an upper bound in mind, whereas the SNB, more focused on Europe, may simply wish to maintain its negative sight rate and intervene in currency markets as needed.


 

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