But as volatility in Japan rises and the Bank of Japan gradually moves away from ultra-low interest rates, investors are increasingly looking for alternatives. One currency is emerging as a natural candidate: the Swiss franc. The logic is straightforward. Swiss interest rates remain close to zero, making the franc one of the cheapest major currencies in the world to borrow. At the same time, the Swiss National Bank remains attentive to excessive currency appreciation, reducing—at least in investors’ eyes—the risk of a sharp and uncontrolled strengthening of the franc. Positioning data suggests traders are taking notice. Hedge funds have pushed net short positions in the Swiss franc close to a two-month high, while speculative short positions in the yen have declined for a second consecutive week. The performance differential is already becoming visible. Over the past month, a carry trade funded in Swiss francs and invested in the Mexican peso would have generated a return of roughly 4%, compared with around 1.3% for the same trade funded in Japanese yen. The yen is unlikely to lose its status as the world’s dominant funding currency anytime soon. But the backdrop has changed. Expectations of higher Japanese interest rates, combined with the persistent risk of currency intervention, have made yen-funded carry trades less predictable. By contrast, Switzerland combines extremely low borrowing costs with relatively low interest-rate volatility. That is putting the franc firmly back on traders’ radar. There is, of course, a striking irony in all of this: one of the world’s ultimate safe-haven currencies is increasingly being borrowed to finance risk-taking elsewhere. The Swiss franc may still be a refuge when markets panic—but in calmer times, it is increasingly becoming the fuel behind the carry trade. Source: Bloomberg