What’s driving the CHF and the JPY?

Giles Coghlan LLB, Lth, MA Financial Source

Swiss National Bank, -0.75%. Neutral to bearish

The SNB interest rates are the world's lowest at-0.75% and haven't changed at a scheduled meeting since 2009. However, with the strengthening Franc hurting the Swiss export economy a number of large institutions, like UBS Group, Raiffeisen Bank International AG and Bank J. Safra Sarasin, called for a rate cut at the September 19 meeting. This was in response to the Swiss franc increasing more than 4% versus the Euro. These calls were not heeded. As Swiss inflation remains low, in October 2019 it stood at -0.3%, the SNB rate is likely to stay as the world's lowest interest rate for the foreseeable future. The main driver of the CHF is the fact that it is a safe haven currency. If trade relations between the US and China sour, expect CHF strength

Bank of Japan, -0.10%. Neutral

The Bank of Japan is very bearish as a bank. Inflation in Japan continues to miss the 2% target and the BoJ have stated that they will 'keep very low interest rate levels for an extended period of time'. In October inflation in Japan stood at just 0.2% slowing from its peak in April of 0.9%. The Bank of Japan has been failing to achieve its inflation target for years since it fell from 2.3% to 0.6% in April 2015. The highest reading since then has been 1.5% in February 2018. At their October meeting, in response to low inflation data, the Bank of Japan tweaked their forward guidance to signal a rate cut in the near future by stating that they expect short term and long term rates to stay at current or lower levels for as long as needed. The risks for Japan's economy are neutral to bearish. As with CHF the main driver of the JPY is the fact that it is a safe haven currency. If trade relations between the US and China sour, expect JPY strength. A go to currency pair to trade on risk sentiment is the AUDJPY pair. When risk is on, expect AUDJPY strength. When risk is off expect AUDJPY weakness.

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Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

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