Synopsis:

Credit Agricole recommends selling CHF/JPY as a key trade for 2025, driven by divergent monetary policies between the Swiss National Bank (SNB) and the Bank of Japan (BoJ). With the SNB likely nearing the end of its easing cycle while the BoJ gradually normalizes policy, the pair could face sustained downward pressure.

Key Points:

1. Monetary Policy Divergence:

   • SNB: Expected to pause or moderate its easing cycle by mid-2025, limiting CHF upside.
   • BoJ: Anticipated to gradually tighten policy amid stronger inflation dynamics in Japan.

2. Yield Differentials and FX Intervention:

   • Narrowing Yield Spread: As JGB yields climb, yield differentials could compress, favoring the JPY.
   • FX Policy Risks: SNB’s active intervention stance may weaken CHF, adding bearish pressure on CHF/JPY.

3. Macro Considerations:

   • Geopolitical Risks: Reduced safe-haven flows to CHF if geopolitical risks moderate in 2025.
   • Economic Rebound: A potential economic rebound in Japan could strengthen the JPY further.

Conclusion:

Credit Agricole sees CHF/JPY as a compelling short position for 2025. With a likely pause in SNB rate cuts and potential BoJ tightening, the trade benefits from narrowing yield spreads and diminishing CHF safe-haven demand. Selling CHF/JPY on rallies could offer attractive returns in the year ahead.