Recently, the volatility of yen crosses (i.e., the exchange rate combination of the yen and other non-US currencies) has attracted great attention from the market. Nomura Securities and other institutions pointed out that in the current context of policy divergence, interest rate differential changes and geopolitical risks, shorting the downside position of yen crosses may become a more attractive trading opportunity. The following is an analysis from three dimensions: monetary policy, market expectations and technical aspects.

Monetary policy divergence drives the logic of interest rate differentials

Expectations of interest rate hikes by the Bank of Japan are strengthened

After the Bank of Japan ended its negative interest rate policy in March 2024, it further released interest rate hike signals in 2025. The market expects that it may raise interest rates by 25 basis points in January and July respectively. Although Japan has maintained an accommodative policy for a long time, the start of the interest rate hike rhythm indicates that the interest rate differential with other major central banks (such as the Federal Reserve and the Swiss National Bank) may gradually narrow.

The Fed has started a rate cut cycle, but the dollar remains resilient

The Fed started cutting interest rates in the second half of 2024, but the relatively strong US economy and the Trump administration's potential fiscal stimulus policies (such as tax cuts and trade protectionism) may slow the pace of dollar depreciation. At present, although the interest rate differential between Japan and the United States has narrowed from 3.44% at the end of 2024 to around 2.9%, the US dollar is still supported by high asset returns and policy uncertainty.

European monetary policy is relatively loose

The Swiss National Bank's policy interest rate is lower than that of the Bank of Japan, so the Swiss franc/yen has a positive interest rate differential for the first time, providing fundamental support for shorting the cross. In addition, due to limited fiscal expansion space in the UK, GBP/JPY is also facing downward pressure.

Analysis of major yen cross trading opportunities

Swiss franc/yen (CHFJPY): shorting window under positive interest rate differential

  • Policy background: The Swiss National Bank maintains looseness and the Bank of Japan raises interest rates, resulting in a weakening of the Swiss franc's financing cost advantage.
  • Technical aspect: Swiss franc/yen has strong support around 99.00, but if it falls below this position, it may open up further downward space. Nomura Securities believes that the current positive interest rate differential environment makes the currency pair "particularly attractive".

GBP/JPY: Fiscal policy drags down the pound

  • UK fiscal constraints: It is difficult for the UK to follow Germany's example and launch large-scale fiscal stimulus. The spring budget lacks highlights, and the pound is under pressure.
  • Technical resistance: GBP/JPY failed to break through the 38.2% Fibonacci retracement level of 156.04. If it cannot stand above 149.89 in the short term, it may pull back to 145.89.

NZD/JPY and CAD/JPY: Selling opportunities on rallies in range fluctuations

  • NZD/JPY is suppressed by the 200-day moving average. If it fails to break through the resistance level of 58.15, it may fall to 55.78.
  • CAD/JPY forms short-term resistance near 105.50 and may return to the bottom of the range after breaking below the lower edge of the rising wedge.

Market divergence and risk factors

Institutional views diverge

  • Depreciation faction: HSBC expects USD/JPY to rise to 160 by mid-2025, arguing that US policy uncertainty supports the dollar.
  • Appreciation faction: Morgan Stanley predicts that the yen will rise to 140 as the Fed's rate cut may exceed expectations.

Geopolitical and policy risks

  • The escalation of tensions in the Middle East may boost risk aversion, which is good for the yen; but the impact of rising energy prices on Japan's trade deficit may offset this effect.
  • If the Trump administration's trade protection policy triggers a rebound in global inflation, it may force the Fed to slow down its rate cuts, which is bad for the yen.

Risk of intervention by Japanese authorities

In 2024, Japan has invested more than 15 trillion yen in foreign exchange market intervention. Although it has not reversed the trend, it may limit the extreme volatility of the yen cross.

Trading strategy recommendations

  • Short-term operation: Pay attention to the short-selling opportunities of CHF/JPY and GBP/JPY on rallies, with stop losses set above 100.25 and 149.89 respectively.
  • Medium- and long-term layout: If the Fed accelerates the rate cut and the Bank of Japan's rate hike is implemented, it can gradually turn to yen longs, focusing on tracking the changes in the Japan-US interest rate differential.

Conclusion: The current downward opportunities of the yen cross are mainly due to policy differentiation and technical pressure, but we need to be wary of the two-way fluctuations caused by the resilience of the US dollar and geopolitical risks. Investors should combine position management and risk hedging tools to seize the structural trading window.

*Disclaimer: The content of this article is for learning only, does not represent the official position of VSTAR, and cannot be used as investment advice.