The CHF recently hit an all-time high against the JPY but has since fallen back a little and could fall back a lot more. Our view of the fundamentals, sentiment, and technicals are below:
The JPY is the most oversold major and we are looking to build long positions in the Yen in a number of pairs and a very attractive risk to reward is going short of CHF/JPY.
SNB Hold Rates Against Forecasts
At its meeting this month the SNB held rates against market forecasts for a rise and noted concerns they have in reference to growth. The SNB at the same time reduced its 2025 inflation forecast to under 2% from 2.1% previously, this indicates that they think the current rate is sufficient to bring inflation back to target.
“While accelerating inflation was a concern, FX weakness was not tolerated, but now the SNB may be happier to allow some weakening in the franc. Sight deposits at the SNB - since liquidity support for Credit Suisse ended - continue to show broad downwards momentum, suggesting the SNB is not heavily intervening to support the franc.” (SIMON WHITE BLOOMBERG)
The Japanese Yen as we have noted in recent articles is deeply oversold and it's very oversold against the CHF which we can see on the chart below:
Bank of Japan to Raise Rates
On the other side of the pair in terms of the JPY - The BOJ has not yet exited its negative interest-rate policy, as recent statements from the Bank of Japan have indicated as inflation and inflation expectations remain uncomfortably high. In fact, inflation in Japan is now above US inflation where the Fed has been very hawkish in terms of raising rates. The chart below shows inflationary pressure on the rise and Japan has to act...
With yields likely to rise in Japan capital will move back to the Japanese markets boosting the Yen and this could happen before any BoJ action as large institutions prepare for the event. Also, speculators are heavily short the Yen and we expect these bets to be unwound.
Trading Big Trend Changes
For long-term position traders going short of CHF/JPY on bounces or on a break of support could offer major downside potential with excellent risk to reward.
Our view of the major levels of support and resistance to look out for are on the chart below.