Nomura: High-Confidence Long CHF/JPY Position Maintained, Target 206.50

Overview

This report is a trade update issued by Nomura’s Global FX Strategy team. The core view is a firm reaffirmation of the 'Long CHF/JPY' trade strategy, with confidence upgraded to 4/5 (out of 5). The report argues that although both the Swiss National Bank (SNB) and Japan’s Ministry of Finance (MOF) remain watchful over FX market volatility, their interventions are expected to be measured and non-aggressive. Supported by robust capital flows and safe-haven demand, the Swiss franc is poised to strengthen further by end-Q2, targeting 206.50.

Core views

Swiss National Bank (SNB): SNB Chairman Schlegel reiterated the central bank’s willingness to intervene in FX markets, particularly in response to upward pressure on the franc caused by escalating Middle East tensions. However, the report notes that SNB intervention is likely to be 'measured,' aimed at mitigating deflationary pressures from currency appreciation rather than reversing the broader trend. Data shows that the Swiss franc’s real effective exchange rate has appreciated far less than its nominal effective exchange rate, giving the SNB justification to avoid aggressive action. Moreover, while the SNB revised up its inflation forecast, its 2026 CPI outlook remains at just 0.5%, indicating persistent deflationary risks. Nevertheless, the SNB remains unwilling to push policy rates back into negative territory. Thus, the report concludes that occasional SNB intervention may occur, but rate cuts to weaken the currency are unlikely. A strong current account surplus, seasonal capital flows, and safe-haven inflows will continue to strongly support the franc. Japan: Japan’s Ministry of Finance remains vigilant on exchange rate movements. On May 19, Finance Minister Shunichi Kato used strong language—'bold action'—in verbal intervention. However, the report emphasizes that the market’s real concern lies with Makoto Mimura, Vice Minister for International Affairs, who holds decision-making authority over actual intervention. So far, there has been no further escalation in rhetoric from Vice Minister Mimura. A survey indicates that 67.2% of respondents expect MOF intervention once USD/JPY reaches 162. In the current environment, markets remain cautious but not panicked, and one-month and three-month implied volatilities are notably low, suggesting that intervention risk has not materially increased. Only if USD/JPY sustains a climb toward the critical 162 level would the report reassess this trade.

Analysis framework

Nomura’s analytical approach combines macro fundamentals with policy dynamics. First, it evaluates the divergence between nominal and real effective exchange rates to discern central banks’ true intentions and room for intervention (i.e., distinguishing between 'easing pressure' and 'reversing trends'). Second, it closely examines central bank officials’ statements and tracks key decision-makers’ behavior to assess the likelihood and intensity of policy intervention (e.g., differentiating the weight of comments from the Finance Minister versus the Vice Minister for International Affairs). Finally, it integrates market survey data (e.g., expected intervention trigger levels) and technical indicators (e.g., implied volatility) to holistically gauge market sentiment and risk premiums, thereby determining trade confidence and target levels.

Methodology notes

• Event Game Theory & Behavioral FinanceExpectation Gap / Expectation Management

  Game between central bank verbal intervention and market expectations

  The report analyzes the intensity and frequency of statements by central bank officials (e.g., SNB Chair, Japanese Finance Minister, and Vice Minister) to assess whether markets have already priced in intervention risk. If key decision-makers do not escalate rhetoric, markets may interpret even verbal warnings as low-probability signals of actual intervention, thus ignoring the noise.

• Macroeconomic framework

  Divergence analysis between nominal and real effective exchange rates

  By comparing nominal exchange rates with inflation-adjusted real rates, the true economic impact of currency appreciation can be assessed. If nominal rates appreciate significantly but real appreciation is limited, it suggests offsetting domestic inflation or trading partner currency movements, reducing the urgency for central bank intervention and favoring a more moderate approach.

Key data

• CHF/JPY Target Price206.50Expected to be reached by end-June 2026
• CHF/JPY Entry Price200.20Entered on April 30, 2026
• Trade Confidence4/5High confidence, upgraded from previous level
• Switzerland 2026 CPI Outlook0.5%Year-over-year, indicating ongoing deflationary pressure
• Market-Expected Intervention LevelUSD/JPY 16267.2% of respondents expect MOF intervention at this level

Impact & implications

The report views the current FX market as being in a delicate balance. For the Swiss franc, fundamental support (current account surplus, safe-haven appeal) outweighs policy headwinds (limited intervention). For the yen, although intervention threats exist, market sentiment remains relatively stable as long as the critical threshold (USD/JPY 162) is not breached. Therefore, going long CHF/JPY leverages the franc’s structural strength and temporarily manageable yen intervention risk. Should USD/JPY approach 162, however, actual intervention by Japanese authorities could trigger sharp short-term yen volatility, impacting the CHF/JPY cross pair.

Risks

• Swiss National Bank implements more aggressive intervention than expected
• USD/JPY rapidly climbs to 162, triggering actual intervention by Japan’s Ministry of Finance
• Significant shifts in Middle East geopolitical tensions alter safe-haven capital flows

What to watch

• Future statements by Makoto Mimura, Japan’s Vice Minister for International Affairs
• Whether USD/JPY approaches the critical 162 level
• Monthly changes in SNB foreign exchange reserve data
• Whether EUR/CHF falls below the 0.91 alert level