Finance: The “Carry Trade” Drives the Swiss Franc and Japanese Yen to New Heights

The slowness of the FED and the ECB to lower their key rates is becoming increasingly blatant while the Bank of Japan and the Swiss National Bank have already taken a lead. These two, with their extremely low rates, favor a dynamic economic activity. The Swiss franc and the yen are benefiting, while speculation is soaring. Let’s now dive into the heart of the matter.

The finance strategy through « Carry Trade »

The Swiss franc and the yen, often compared to bitcoin (BTC), are soaring in value thanks to a liquidation of « carry trade » positions. This technique favored by speculators involves borrowing in a low-interest currency to invest in a high-yield currency.

The central bank rate of the Bank of Japan varies between 0% and 0.1%, while that of the Swiss National Bank is 1.25%, two of the lowest in the world.

Brad Bechtel, from Jefferies, explains: « This is a liquidation of carry trade positions. »

Furthermore, the offshore yuan is also a popular financing currency for this type of strategy. Among the top destinations for these speculators are the Brazilian real, the Mexican peso, and the US dollar.

The Swiss franc gained 0.78% against the euro, reaching 0.9599 Swiss francs per euro.

The Japanese currency advanced by 1.06% against the dollar, settling at 153.96 yen per dollar.

Expected interventions and market reactions

The recent rise in the yen is attributed to the prospect of interventions by Japanese authorities in the foreign exchange market, although the Japanese government has not confirmed anything. Japan plans to release data on its foreign exchange market activities on July 31, coinciding with the end of the Bank of Japan’s monetary policy meeting.

Speculators anticipate a 0.1 percentage point increase in the key rate, which has boosted the yen. The institution will also need to clarify its strategy concerning the reduction of its purchases of Japanese sovereign bonds on the market.

Global finance is in turmoil, and all eyes are on these potentially decisive interventions.

As central banks take divergent directions, the Swiss franc and the yen are gaining strength. Global finance is evolving rapidly, and the cryptocurrency market is witnessing it.