17.06.2022 – A lot is happening at the moment: Great Britain and Switzerland have now also raised interest rates. Japan continues to refuse. The result: the yen is plunging. Equities, too, are sliding, because higher interest rates not only fight inflation, but also suck capital out of the financial market. Currencies with high interest rates, on the other hand, are robust.
We can hardly keep up with the news at the moment. And it is difficult to pick out the most interesting chart in these turbulent times. We have chosen the four-hour chart of CHFJPY – where a nice upward channel has built up. We see no fundamental reason why this should change apart from profit taking, intervention or a radical but unlikely reversal in Tokyo.
What has happened: Today, Friday, the Japanese central bank again refused to support the Japanese yen. The short-term key interest rate remains at minus 0.1 per cent, the purchase programme of government bonds and other securities will not change. The Bank of Japan is sticking to its interest rate target of 0.25 per cent for ten-year Japanese bonds. As a result, this weakens the yen. In other words, the BoJ continues to diligently buy its own government bonds to keep the yield at this mark, of course with printed yen.
Interest rate hike in the UK
The evening before, Wall Street and the European stock markets had fallen sharply. For the interest rate turnaround is widening. After the Federal Reserve, the Bank of England raised its key interest rate by a quarter of a percentage point to 1.25 per cent. There is probably more to come: Because the monetary guardians predicted inflation of more than 11 per cent for the island in October this year.
Switzerland raises key interest rate
The Swiss National Bank (SNB) also raised interest rates for the first time in over seven years. The key interest rate and the interest rate on demand deposits will be raised by half a percentage point from minus 0.75 per cent to minus 0.25 per cent as of 17 June. A move that has already given stock market players everywhere a bit of a fright. Especially since many investors are wondering how many US shares the SNB really holds – and whether it will liquidate them at some point. At the end of March, Switzerland held a new record value of 177.3 billion dollars, as the Securities and Exchange Commission (SEC) announced in its quarterly report.
Franc long – Yen short
The conclusion to be drawn from this constellation: the ring leader on the long side is the Swiss franc. The Alpine republic exports goods and services that are quite crisis-proof for years to come. Such as: Banking services with banking secrecy; high-priced tourism that attracts sheikhs, US movie stars, Russian oligarchs or the Indian middle class with snow-sure luxury; premium watches; pharmaceuticals. You can also see the strength of the economy from the fact that inflation in Switzerland is still quite moderate at 2.9 per cent in May.
On the short side, the Japanese yen remains the frontrunner. The Nippon, with its exports of household electronics, high-tech and cars, will feel the consequences of a global recession keenly. And the Japanese central bank remains stuck in the interest rate trap. That is exactly why we have put the franc and the yen together in one chart above.
It smells of intervention
And a final statement: If the interest rate crash picks up speed and panic rages at some point, it is only a matter of time before the Federal Reserve intervenes in tandem with the major central banks. Buying bonds or stocks would be ways to stop the crash. Bernstein Bank keeps you up to date!
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