August 16, 2011
Swiss, Japanese Struggle With Safe-Haven Stampedes
A game of "whack-a-mole" is under way in the foreign-exchange market, with Switzerland and Japan both rushing to bash down their currencies, only for the other to pop higher.
As growth levels around the world falter, the euro-zone debt saga spreads, the U.S. reels from its debt downgrade and stock markets convulse, fund managers and traders are heading toward currencies that historically have offered a safe harbor in uncertain times.
Gold—the market's premier safe retreat—is pushing against $1,800 a troy ounce. The dollar, Swiss franc, and yen also tend to fulfill that so-called safe-haven role, but with the greenback hampered by the Standard & Poor's downgrade to the U.S. government's credit rating, the Swiss and Japanese currencies have been shooting up to levels few thought possible just a few weeks ago.
But when the Swiss authorities try to fight back, the yen pops higher. And when Japan seeks to scare traders off, the franc jumps.
"Investors are afraid. They can see there's a truck coming down the road toward them, and they want to jump to the sidewalk," said Stephen Jen, founder of investment and advisory firm SLJ Macro Partners.
The dollar's "sidewalk" is tarnished with the U.S.'s loss of its triple-A rating, Mr. Jen added. In the currency market, then, that leaves just the franc and the yen.
In Switzerland, the central bank has launched new liquidity-enhancing programs and refuses to rule out the once-unthinkable: pegging the franc to the euro. Although it is far from clear whether it would actually go that far, just the suggestion has helped send the franc tumbling after it flirted with parity against the euro last week. Midafternoon in New York, the euro was at 1.1436 francs.
Traders are speculating that more could happen Wednesday. The Swiss government will decide whether to hold a media briefing on the strong Swiss franc when it convenes then for its first scheduled session following the summer break, an economics-ministry spokeswoman said.
The Swiss National Bank's next regular policy meeting is Sept. 15.
In Tokyo, the Bank of Japan spent the equivalent of about $57 billion buying foreign currencies as it publicly intervened on Aug. 4 to weaken the yen. A week later, it signaled that it could act again as it checked dealers' price levels—a step that often, though not always, precedes official yen selling.
The effect soon wore off. One reason: The Swiss were taming the franc. Tuesday, the dollar was hovering at ¥76.75, just 0.6% above its lowest point since World War II.
It's a see-saw motion; one reason for the franc's recent surge is the early August yen intervention, which pushed safety flows toward the Swiss currency, analysts say. Simon Derrick, chief currencies analyst at Bank of New York Mellon in London, warned the upward pressure on both currencies will persist, regardless of official action, until the underlying reasons for investors' concern ease.
http://online.wsj.com/
