For years, the Japanese yen (JPY) has been a preferred funding currency in carry trades due to its ultra-low interest rates and stability. However, 2025 presents a drastically different environment. The shift in global monetary policies, and Japan’s evolving economic conditions have weakened the appeal of JPY as a funding currency. At the same time, the Swiss franc (CHF) has emerged as a more attractive alternative.
Rising Interest Rates in Japan
Japan’s central bank, the Bank of Japan (BoJ), has been gradually moving away from its long-standing negative interest rate policy. Since the latter half of 2024, the BoJ has signalled multiple rate hikes, pushing Japanese yields higher. This makes borrowing in JPY less attractive for carry traders, as the cost of funding increases.
A currency that was once predictable and cheap to borrow now carries higher uncertainty, making it a risky funding choice.
Shrinking Interest Rate Differentials
One of the key drivers of the JPY carry trade was the large interest rate differential between Japan and other major economies like the U.S. and the Eurozone. However, as Japan raises rates, this gap is narrowing. The profit potential from borrowing in JPY and investing in higher-yielding assets is no longer as lucrative as before.
Why CHF Is a Better Funding Currency in 2025
With JPY becoming less attractive, traders and investors are turning to CHF as a more suitable funding currency. Here’s why:
Low and Stable Interest Rates
While other central banks have raised rates aggressively, the Swiss National Bank (SNB) has maintained a relatively lower interest rate policy compared to the U.S. and Eurozone. This makes CHF borrowing cost-effective, offering a reliable alternative to JPY.
Lower Volatility
CHF’s historical stability makes it ideal for carry trades and funding strategies. Unlike the yen, which is more prone to unexpected movements due to policy changes, CHF has remained predictable in 2025, reducing risk exposure for traders.
Swiss Banking Advantages
Switzerland’s reputation for financial stability, strong banking infrastructure, and sound economic policies add an extra layer of confidence when using CHF as a funding currency.
Conclusion
The shift in global markets has altered the traditional dynamics of funding currencies. The Japanese yen, once a dominant funding currency, is losing its edge due to rising interest rates, increased volatility, and shrinking rate differentials. In contrast, the Swiss franc (CHF) offers a more stable, cost-effective, and lower-risk alternative in 2025.
For traders and investors seeking the best funding currency, CHF now presents a superior opportunity, while JPY’s time as the go-to funding currency is coming to an end.
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