Talking Points
- After more than a month of falls, CHF/JPY has started to move higher.
- Although both the Swiss Franc and the Japanese yen are seen as safe havens, JPY is suffering from Japan’s proximity to North Korea.
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When investors turn cautious, there are three main assets that they turn to: the Swiss Franc, the Japanese Yen and gold. Now, though, the Yen is at risk of losing its haven status because of Japan’s proximity to an increasingly belligerent North Korea.
On Tuesday, North Korea conducted a large-scale live-fire exercise to mark the 85th anniversary of the foundation of the so-called Korean People’s Army. At the same time, the US has sent an aircraft carrier strike group for exercises off the Korean peninsula as a warning to the state and to show support for US allies, such as Japan, in the region. The result has been a sizeable rally in CHF/JPY.
Chart: CHF/JPY Daily Timeframe (2017 to Date)
For now, optimism in the wake of the first round of the French presidential election has led to a “risk on” mood in the markets but, when investors decide that a reduction in risk is called for, it’s likely to be the Franc that they turn to rather than the Yen, suggesting the advance in CHF/JPY could continue.
Note, though, that the Franc has fallen back against the oldest haven of all, gold, albeit after a strong advance.
Chart: Gold Price in Swiss Francs, Daily Timeframe (2017 to Date)
Chart by GoldBroker.com
Note too that 10-year Swiss government bonds have a negative yield of 0.133% compared with Germany’s positive yield of 0.372% and the US’s 2.305%. With German Bunds and US Treasuries also seen as safe ports in a storm, that could limit CHF buying from risk-averse investors when the present market optimism subsides.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Follow Martin on Twitter @MartinSEssex
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