CHF/JPY: Swiss Franc Challenges Yen as Leading Safe Haven Amid Global Risk

The Swiss franc may take the lead in the competition between traditional safe-haven currencies if risk aversion fully takes control, as traders will have to adjust their hawkish expectations toward the Bank of Japan. The CHF/JPY pair is trading below 170, down more than 2% this year—and to be clear, the base scenario is for this trend to deepen. The Japanese yen has gained against all G10 currencies so far this year due to divergence in monetary policies. In a world where most central banks are cutting interest rates or at least pausing their easing cycles, the Bank of Japan stands on the opposite end.

Japanese officials raised interest rates by 25 basis points last month but did not deliver the truly expected hawkish move. Governor Kazuo Ueda was far from hawkish, likely aiming to keep the yen’s strength under control. However, on an aggregate level, forward guidance suggested more rate hikes are expected. Ueda’s statement on Tuesday that “Japan is in inflation, not deflation” was a clear signal that the market’s expectation of just one more 25bps hike this year is very conservative.

Data from Wednesday showed that nominal wages in Japan—a key indicator for the Bank of Japan’s rate path—rose at the fastest pace in nearly three decades. A majority of economists surveyed by Bloomberg expect the next hike in July, while Bloomberg Economics forecasts two more 25bps hikes this year, in April and July.

The Swiss National Bank’s half-point rate cut in December was a mild surprise to some, highlighting policymakers’ concerns about inflation risks and economic growth. Another 25bps cut next month or in June would bring the main rate down to 0.25%. SNB President Martin Schlegel reiterated last month that officials are ready to lower borrowing costs below zero again if inflation slows too much. However, there is little room left for additional dovish moves from the SNB.

The key factor in determining the better safe-haven currency is how much volatility the world will see as a result of U.S. President Donald Trump’s policies. Ueda has made it clear that this is a major concern for Japanese officials. A global trade war would create uncertainty that could sideline the Bank of Japan for much longer than yen bulls might expect based on current market pricing.

Market movements this week have shown that, despite the SNB’s dovish stance, the Swiss franc remains firmly on investors’ radar as a safe haven. It lagged behind the yen’s gains, but this occurred as U.S. tariff threats and retaliatory measures caused uncertainty about the true direction of the trade war. Will it escalate, or are these just tactics?

An escalation would weigh on the yen against some of its competitors, as traders would need to be less hawkish toward the BOJ, making the Swiss franc the preferred safe-haven currency. Data from the Depository Trust & Clearing Corporation shows that demand for CHF/JPY options after the BOJ rate hike is evenly distributed. This could be the first sign that traders are beginning to have doubts about how this currency pair will react to prolonged market risk.