Weaker Swiss franc may emerge as consequence of US-Japan yen intervention

When the US and Japan decided to tag-team the currency markets to rescue the yen from multi-decade lows, the Swiss franc was probably the last currency expecting collateral damage. Yet here we are: a coordinated intervention worth an estimated $75-85 billion has begun reshaping global forex dynamics in ways that could actually benefit Swiss exporters and the Swiss National Bank alike.

The intervention, which kicked off around July 30 after the dollar-yen pair climbed to roughly 164 yen per dollar, marked the first time the US actively participated in defending the yen since 2011. Japan’s Ministry of Finance led the charge, deploying tens of billions in yen purchases to arrest the currency’s slide. The US Treasury played a supporting role, adopting an unusual tactic of purchasing euros as part of its intervention toolkit. Treasury Secretary Scott Bessent signaled willingness for further coordinated action, a stance that makes sense when you consider Japan holds over $1.1 trillion in US Treasuries.

The initial results were dramatic. The yen rallied as much as 5% intraday following the intervention. By mid-August, the pair had settled around 158-159, meaning the yen retraced roughly half of its gains.

Traders started looking for alternatives. The Swiss franc, with its own low interest rates and reputation for stability, became the obvious substitute. The shift has been noticeable enough that forex strategists are tracking a meaningful reallocation of carry trade funding from yen to franc.

If carry traders increasingly borrow in Swiss francs to fund their positions elsewhere, that selling pressure naturally weakens the currency. A weaker franc means Swiss goods become cheaper for foreign buyers. The mechanism works like this: when traders use the franc as a funding currency, they borrow francs and immediately sell them to buy higher-yielding assets denominated in other currencies. That selling pressure pushes the franc lower.

The coordinated intervention has effectively introduced a new risk premium into yen-funded carry trades. Traders now have to price in the possibility that the US and Japan could step in again at any time, potentially wiping out months of accumulated carry returns in a single session. Bessent’s public statements about willingness to act again reinforce that the threat isn’t going away soon.

The Swiss franc doesn’t carry the same intervention risk. The SNB has historically intervened to weaken the franc, not strengthen it, meaning carry traders borrowing in francs face the opposite regulatory dynamic.

The key variable is whether the yen continues trading in its current range near 158-159, or whether it drifts back toward the 164 level that triggered the intervention in the first place. Japan’s $1.1 trillion Treasury holdings give it enormous leverage in negotiations with the US, and the willingness of both sides to act in concert suggests this partnership could become a more permanent feature of the forex landscape.

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