Japanese Yen and Swiss Franc: Analysts' Top Picks for Tariff Shields

Following President Donald Trump's recent announcement of reciprocal tariffs, investors are now seeking refuge in secure assets, including the Japanese yen and bonds, among other 'uncommon' choices.

"For escaping the pressures of trade conflicts and a potential U.S. downturn, the Japanese yen stands out as a prime candidate, for many well-known reasons," stated Ebrahim Rahbari, who leads rates strategy at Absolute Strategy Research.

"The yen remains undervalued, and anticipated drops in U.S. interest rates will reduce the interest rate gaps with the yen. Although Japan is a significant exporter, its dependency on trade has lessened, particularly with current liberal fiscal policies," he mentioned in an email to CNBC.

Data from LSEG shows the yen has gained about 3% against the U.S. dollar since early April. Rahbari also identified the Swiss franc as another logical choice for investment protection. The franc, too, saw an appreciation of over 3%, reaching 0.8522 against the dollar, contrasting the weakening trend of global currencies.

Another strategist concurred, naming both the yen and the Swiss franc as optimal solutions for buffer against the impact of Trump's tariffs.

"Under the influence of tariffs, both the Japanese yen and Swiss franc function well as market reaction dampeners," commented Matt Orton, who heads advisory solutions and market strategy at Raymond James Investment Management.

Orton believes the Swiss franc might serve as a stronger hedge compared to the yen due to uncertainties about future interest rate hikes by the Bank of Japan.

Currencies and Global Challenges

Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corporation, pointed out that the yen typically performs well during worldwide economic downturns or crises. "Even if we steer clear of a severe global slowdown, [the yen] could prosper as the BOJ may increase rates amidst widespread central bank rate cuts," he explained.

However, he cautioned that Japan's economy isn't entirely immune to challenges posed by Trump's tariffs, especially those concerning automobiles and their parts. A decelerating economy might drive the BOJ to maintain low interest rates, potentially weakening the yen.

Rahbari also raised the notion of exploring 'exotic' hedges aside from traditional safe assets, suggesting the Brazilian real as an alternative.

"Its affordability, attractive yield, and lesser exposure to global trade make it a compelling choice," Rahbari elaborated, noting its year-long currency strength.

Bonds and Gold in Focus

Investors have also been moving towards liquidity and assets with minimal risk, such as Treasurys and bonds.

A continued drop in bond yields reflects mounting demand for bonds, with the benchmark 10-year U.S. Treasury bond yield plunging 6% since April, reaching a low point of 3.873% recently.

Similarly, Japan's 10-year government bond yield fell to 1.05%, marking a sharp 28.52% decline from its early April position. This marks the lowest yield for the 10-year JGB since late 2024.

"Market participants are retreating into safety, opting for Treasurys, gold, currency futures, and other tangible and financial instruments," observed José Torres, senior economist at Interactive Brokers.

Gold prices surged immediately post-tariff announcement and, though they've slightly retreated, they maintain high levels amid ongoing market nervousness.

"Gold continues to benefit from intensified trade risks, geopolitical uncertainties, a weakened U.S. dollar, central bank purchases, and looming recession dangers," BMI analysts noted.

Ng from SMBC highlighted gold's reputation as a crisis-safe investment, explaining robust demand from private entities and governments. Yet, he stated, "gold prices are tentatively high."

The robust start for gold prices in 2025 is bolstered by the recent tariff imposition, according to Adrian Ash, director of research at BullionVault.

"Diminished trade, increased costs, and shrinking profit margins are impacting the stock market heavily, alongside increasing geopolitical distrust, setting the stage for gold's continued rise," Ash asserted.

The past week closed brutally for U.S. stocks with a 9.08% loss according to FactSet, as fears mount about Trump's policies driving a global economic slowdown. Predictively, JPMorgan elevated the year's end risk of recession.

"Equities are lacking demand at present," stated Orton from Raymond James Investment Management.