Great Graphic: Swiss Franc and Yen Moving Together

This Great Graphic, constructed on Bloomberg, depicts the correlation of the yen and the Swiss franc on a 60-day rolling basis, on the level of percent change.  At  0.34, the correlation may not seem like much, but it is the highest since Jan-Feb 2012.   Moreover, recently, as in the past 30-days the correlation is more than twice as strong (0.79).  

The narrative told by some in the social and traditional media is that the the heightened policy uncertainty is spurring demand for safe haven currencies.  

We are skeptical and would want to make a distinction between buying a currency to go long and buying a currency to cover a short.  We suspect that both the yen and Swiss franc are experiencing short covering.    The positioning in the futures market, which may be a useful proxy for trend follower and momentum players, is clear.  While the gross short yen position is near five year highs, the gross franc position has doubled in recent weeks to its highest level since last July. 

Moreover, we note that foreign investors have bought nearly $80 of Japanese shares thus far this year and often hedging the currency.  Here at month end, some are adjusting exposures.  Japanese investors have sold about $93 bln of foreign stocks and bonds this year.     These flows are not comprehensible in the simplistic narrative of risk-on and risk-off or safe haven demand.