Currency trading is also popular by many other commonly used terms. Say, for example currency trading is also acknowledged as Forex trading, Fx Trading, currency pair trading and so on. This platform aids investors to assess and compare favorable and unfavorable features, ups and downs of various economies of the world and buy and sell currencies that belong to the economies depending on their suitability, in terms of familiarity, timing, knowledge, analyses, understanding, and in-depth study of the market.
Trader trades (buys and/or sells) currency pairs with an objective of earning profits from the difference in rates at different times under different economic conditions and situations. The main aim of Forex trading irrespective of pair the investor is trading – is to find out which country’s economy is likely to outperform another, and based on this analyses one’s decision to enter and exit trades with a view to earn profits from the movement of currencies.
This feature is all about USD JPY currency pair where we shall learn various aspects and angles of trading exclusively focused on USD JPY currency pair. We will try and cover every aspect of the pair, as comprehensively, independently, & interdependently as we can to help our readers who happen to be traders, gain an insight into this business of USD JPY trading.
The feature will hopefully help them gain and sharpen their skills give him/her an edge as a trader. We intend to cover everything from primary to advanced lessons a trader needs to learn which will help him to become an expert at trading USD JPY pair.
So let us start with the most basic and yet most important of all lessons – what does USD JPY or Dollar/ Yen mean.
When we say USD JPY this currency pair formula can be translated into sentence form like this – no. of Japanese yen a trader will require spend to be able to buy one U.S. dollar. From the other angle, if one dollar is sold against Japanese yen how many Japanese Yen the dollar seller will receive.
Trading the USD JPY currency pair in the trader’s circle is also known as trading the gopher. USD which appears in the beginning of the currency set is called the base currency and JPY which appears later in the pair is called the counter or quote currency.
Some economists and experts have made some critical observations from the Bank for International Settlements survey. They have released a report as per which the USD JPY currency pair with 17% of total daily volume is the second highest traded currency pairs amongst the major pairs.
The value of the USD JPY pair is quoted in the following manner – 1 U.S. dollar equals ’n’ number of Japanese yen. Suppose this pair happens to be priced at 76.80 it is translated for a layman as – that an investor or trader will have to shell out 76.80 yen if She/he wants to purchase 1 U.S. dollar.
The USD JPY exchange rate fluctuates or is triggered by causes that either put worth of the United States dollar under some kind of economic pressure or the Japanese yen, independently or in association with each other, as well as to other currencies. If any / either or both economies face any crises or upsurge due to any reason, then the currency will get to experience a blow and the exchange rate as a result are bound to show some swaying or movement.
It is because of this reason that the interest rate disparity between the Federal Reserve (Fed) and the Bank of Japan (BoJ) shows an impact on the value of these currencies when compared with each other.
An example – when the Federal Reserve takes some kind of step, new initiative or intervenes in the open market operations with an objective of strengthening the power of U.S. dollar, the worth of the USD JPY cross is likely to increase, as a result of strengthening of the U.S. dollar especially when the same is compared to yen.
Traders also need to keep the currency pairs correlation in mind. USD JPY, USD/CHF and USD/CAD share a positive, and favorable correlation with each other, because of the fact that in both these pairs, Dollar which is the official tender belonging to US is the base denomination of the currency pair.
USD JPY Currency Pair – An Overview:
The USD JPY Currency pair exch. rate as explained in the beginning is the price of one U.S. dollar known as the base currency in relation to Japanese yen, known as the quote currency. When a bid/ask quote of USD JPY is at 89.29/89.32 , it signifies that a trader can buy one U.S. dollar for 89.32 yen and can likewise sell one U.S. dollar at 89.29 yen.
Now if traders or analysts expect that the U.S. dollar may appreciate against the yen, then the quote might look like this – 89.73/89.76. The strategy a trader should implement in this case would be to buy USD JPY. But on the contrary if trader is expecting the USD to depreciate against the yen, then the quote might fall to 88.68/88.71 and the favorable strategy for traders would be to sell USD JPY.
The weekly published report concerning jobless claims customarily calls for disturbance and upheaval in the currency markets, as it is indicative of the monthly Non-Farm Payrolls, the forex trading king.
Understanding Japanese Yen:
Yen is the legally circulated Japanese tender, third most widely traded following Currencies of USA and Europe – the USD and EUR. It is also one of the reserve currencies positioned after USD, EUR, and Pound Sterling. The word yen signifies round object.
So there are several important features that are attached to the Japanese yen. It’s third highest traded currency, it’s a reserve currency, & it’s amongst the stronger and more stable lot of currencies in the Forex trading arena.
Besides that Japan also happens to be common target when it comes to the short side of what is technically known as carry trades. The reason for this is that the country for around a decade has maintained low interest rates.
Japan as an economy is famous for quite a receptive country when it comes to fluctuations and movement in prices that take place in oil segment because of the fact that the country uses significant amount of oil and hardly has any of its own resources, almost negligible that it can call not bought or its own.
What makes Japan’s economy a strong combination is that it is the 3rd hugest market in the global rink and boasts of trade surplus that stands at 2nd position.
Then what makes the economy invariably shake is the weekly report on jobless claims publication, since it is indicative of the monthly Non-Farm Payrolls.
The traders, who are following the economic announcements coming out of Japan, should ensure that they also follow Bank of Japan’s overnight call rate, The Tankan Manufacturing Index, Preliminary gross domestic product (GDP), & Tokyo core CPI.
From 1931 onwards Japan gradually started to shift from the gold standard system to the managed currency system. Determining factor of Yen’s worth includes Foreign Exchange Market – which is largely governed by economic forces of demand and supply. Yen’s supply is based on the willingness of Yen Holders to hold on to the currency while the demand is based on people from other countries to buy goods and services of Japan or their keenness and willingness in investing in Japan.
Understanding Exchange Rate In Relation to forex Market:
Exchange rate is the rate against which one country’s currency is exchanged for another. These rates are primarily governed by the forces of supply and demand.
If it is understood that the over all demand for Yen in the monetary as well as Forex market is above that of US dollars, in this kind of economic scenario the worth of the yen will but shoot in upward direction and will show a rise. This situation is most likely to arise when an American company places order for Japanese goods and intends to pay it in their currency which is Jap Yen.
Another important tip about Japanese yen is about the values of these currencies which hold relevant till the 4th decimal place.
For Stock Traders Eyeing the Currency Market:
When traders from the stock market shift from commodity or stock market to currencies or try their hands at forex trading they ideally need quite a lot of help. In this section of report we shall discuss everything a trader needs to know about Japanese Yen before he finally trades the USD JPY pair in real market.
Before we start discussion about the currency trading lets understand why Forex trading is not as talked about or popular as stock trading.
In spite of the fact that Forex involves such high trading volume and plays such a crucial role globally, forex market is hardly in the media limelight unlike stock trading which is making some or the other kind of headline everyday. The main reason for this is that this method of trading forex is less noticeable as compared to Stock Exchange. However, for past few years trading forex has become much more visible and bigger.
Times are undergoing a change at a very fast pace – it would note be an exaggeration to say with each passing quarter, some prominent and positive sign is noticed that points towards increasing interest of investors in Forex Market.
Currency or Forex Market is beginning to making its way into the mind of the general public which is clearly visible because increasing number of traders are getting attached with forex market’s inbuilt profitability & its ability to supervise and manage risk. Another feature that is driving traders to forex trading is the absence of geographic boundaries and an active market some part of which is open for everyone round the clock.
Japanese Yen – JPY:
It’s time to return to our topic of core discussion which is the Japanese Yen. After reading this report, giving information some time to fall in place, a little digging, and some trial and error on demo account albeit – traders will sure be able to devise strategies on their own that will work for them. Information will help both types of traders – whether it’s the new kids on the block or an experienced lot familiar with advanced tools and trading strategies.
The strategies traders will be able to develop after reading and absorbing the information here is sure to help their Forex trading career look hopeful and bright. More importantly the strategies and clues in this section may also do their bit to help the traders overcome the hesitations they may be feeling about trading the confusing “out of sync currency pairs” that involves the Japanese yen. We do hope our effort pays off and things do look up, especially for traders whose main concentration is on trading USD JPY pair and to some extent also other currency pairs where JPY is one of the currencies.
Understanding Japan’s Economy before Understanding JPY:
To understand Japanese Yen Traders will first have to understand the economy of Japan.
As an aspiring trader, the first thing you have to know is that Japan as a country is a big huge exporter. Some well known and world known Japanese exports comprise automobile brands Toyotas, Hondas, Nissans, and not to forget a household name across the world – Sony electronics.
As Japan is a big time exporter – its overall stock market scene always looks bright and also manages to perform extremely well in the areas where Japanese companies are selling lots of cars, electronics, cameras, etc. On the other hand reverse reflection is immediately noticeable when sale of these companies’ hits the bottom for these goods and services.
The rate of such items helps to identify how much the exporters manage to put on the market for sale on a regular day to day basis. But the cost aspect is slightly relative – it’s actually how foreign recognizes the cost.
Majority of all this at the end of the day reflects on rates of exchange. If the JPY looks priced lower when compared to a trader’s own country’s currency, then Japanese items will have a tendency to give an impression of being low cost because the trader’s home currency will help him do favorable buying of Japanese merchandise.
On the other hand if the yen comes across as a strong currency, then the same goods appear to be dearer, more expensive. As a foreign buyer, the trader is likely to buy less under such circumstances.
The above explanation will help a trader understand clearly as to why the Japanese yen and Nikkei Stock Index shares unfavorable / negative correlation with each other. When Japanese stocks drop in value, the traders witness the yen rising against the dollar and vice versa.
If a trader is trading the dollar vs. the yen, he uses the symbol USD JPY. Likewise if he is trading the Euro vs. the yen, the symbol is EUR/JPY, and if it the Aussie dollar vs. the yen, it is AUD/JPY. The JPY is always listed as second currency in the sequence and this is called the counter currency and another name as commonly used for the same is also quote currency. Therefore, when the yen goes down, it pushes these pairs upwards. In other words when the Nikkei goes up these pairs too will tend to show an overall rise.
Once a trader is clearly able to understand this pattern about stock and/or currency correlation it will become much easier for him or her to trade currency pairs where one of the components is a JPY. Also after getting a hang of this phenomenon, the traders feel more in control and are able to strike faster and smarter moves in the long run.
When traders begin to observe some real time charts, they will understand a lot more clearly as to how when Japanese stocks fall, and how the Aussie dollar drops at the exact same time. Meaning the yen rises in value against the fall of Aussie.
This suggestion from a professional or on accord of his own experience or that of his colleague can make a big difference for a trader and can take him far to make success in Forex trading. And come to think of it, he is not even really required to understand the way international economics of any of these counties works.
As a matter of fact it is not at all mandatory or compulsory for traders to really have thorough inside out knowledge of foreign exchange to capitalize or benefit from of this correlation. Some common sense and logic will take them a long way. What they have to learn is to be able to distinguish that when Japanese scrip shows a favorable growing pattern and continues to improve, the JPY in all likelihood shows a drop. Actually that’s a big part of the story and will prove to be good enough for a trader to strike some winning deals and trades and book profit.
Timing to Trade Pairs Which Have JPY in Them:
Another thing for traders to keep in mind is the timing to get started in the currency market.
When Japanese economy faced disasters, incentive was given for economies to recover. As they started recuperating and were on recovery path, Japanese stocks shot up once again. At that time the central bankers were still on the war footing about the Japanese yen that continued to gains strength.
However they have not succeeded in their attempt to do so, but it doesn’t look like they have any intentions of stopping. As many financial analysts are observing and the efforts will finally pay off yen’s price will be affected adversely.
All of these dynamics make a great moment when a trader can check out this simple strategy. Also there are so many currency pairs with yen being a part of them out there to choose from that traders will have lots to trade just off this one advice.
USD and JPY currency Pair Profile:
The USD JPY is a popular currency pair for traders, actually 2nd most traded amongst majors. The USD JPY comprises the base currency which is the United States Dollar and the quote currency or counter currency which is the Japanese Yen.
USD JPY is a currency pair wherein value of one currency is compared with the value of the other. In other words when we talk about USD JPY currency pair, we are talking about one currency’s merit against the merit of the other currency. If USD JPY quotation reads as 98.75, in simple words it means that it takes 98.75 yen to buy one US dollar. Or one dollar equals 98.75 Japanese Yen.
There are many reasons because of which the exchange rate of this pair can or is likely to fluctuate Some major reasons are ; Interest Rate Differential that may exist between Federal Reserve & the Bank of Japan; Japanese Government Intervention to strengthen Yen may result in the pair taking a hit; increase in oil prices may also affect the pair’s exchange rate.
Trading happens when currencies are compared. The best thing about USD JPY is that the pair can be bought and sold in any economic environment. USD JPY trading is a preferred choice when it comes to reducing of portfolio risk on the part of trader as the pair comes with scope and possibility which enables a trader to profit in rising markets as well as markets going downhill.
The USD JPY is often found to share a similar correlation to those pairs that have USD as their base currency, like USD/CHF and USD/CAD etc. It is absolutely possible to trade USD JPY online and it actually offers typical advantages and edge, which include scope to trade round-the-clock.
Other characteristics associated with USD JPY currency pair are; the average broker spread is very tight resting between two and four pips; average of everyday range of the pair averages around eighty and ninety pips; as far as the most lucrative and sought after time period when a trader is advised to buy and sell the USD JPY pair is definitely 2400 GMT – 0900 GMT which is Asian session. It’s a politically sensitive pair. Factors affecting USD JPY exchange rate are already mentioned in the above paragraph.
Trading style most recommended for this pair is either Day Trading or Swing Trading. To trade the USD JPY pair, the trader is not really required to be very experienced or a professional. Even a new currency trader can try his hands on this pair. At the same time the pair is also as suitable for experienced and advanced traders.
While trading USD JPY pair, applying Technical Analysis along with analyzing and scrutinizing fundamental news from the Asian zone will help a trader to make better and more informed decision to trade the USD JPY pair. It has been observed that the news and event breakouts are more often true and sustained ones than rumors.
Characteristics of Dollar & Yen – As Individual Currencies & as a Pair:
We shall first discuss USD and JPY as independent currencies before discussing how one impacts the other and finally how a trader can benefit from the movements.
– The U.S. Dollar:
The U.S. Dollar or USD is the legal tender belonging to the United States. It is the most traded currency globally and has been reported that it has been part of eighty five percent of total transactions in 2010. Till about ten years back more than Ninety percent of transactions happening across the globe in all markets had US Dollar as one of the currencies.
The dollar is globally acknowledged as safe haven by leading authorizes along with the fact that competing currencies are increasing in number with more and more economies trying to become part of forex market. It’s also a fact that debt of the United States is increasing and becoming alarming, but the supremacy of the dollar yet cannot yet be challenged.
The dollar is amongst the most widely circulated reserve currencies globally. Special mention of China is a must, where foreign currency reserve comprises two and a half trillion United States dollars. The USD is administered and controlled by the Federal Reserve (FED) authority which is responsible for devising their monetary policy related decisions.
– YEN (JPY) & the Japanese Economy:
The Yen (JPY) as the name suggests (the Japanese Yen) is the national and legal tender of exchange or currency of Japan. It is at 3rd position when it comes to the currencies which are most voluminously traded on the Forex trading platform followed by United States Dollar and the EUR.
The JPY is treated amongst major currencies which is bought and sold aggressively and in big number in the global currency trading markets. Floating Rate applies to Japanese Yen, which goes on to suggest that the market forces comprising demand & supply determine the value of the JPY.
Japan’s main area of concentration in export markets are counties like United States with 22.8% having share, European Union at 14.5%, South Korea at a little less than eight percent Taiwan at almost seven percent, 6.8 percent to be precise, China at fourteen percent, 14.3 percent to be accurate, and Hong Kong at five and a half percent, or 5.6 percent to be exact. This goes to prove that exports like imports is what most of Japan’s economy is made of. And these include transportation equipment, motor vehicles, and electronics.
Imports include food, machinery, and fossil fuels comprises 20.5% from China, twelve percent from the United States, approximately 10.4 percent from the European Union, 6.5 percent of Saudi Arabia, and 5.5 percent from the UAE and so on.
The JPY is receptive to volatility and spikes in exchange rates for a simple reason that Japan as a country happens to be a big exporter of finished merchandise. The Bank of Japan acts shrewd albeit in the interest of the nation when it comes to maintaining and retaining the position and stability of Yen, as Japan’s economy is highly reliant on exports a great deal which helps them to achieve their growth.
Japan is quite small and also short on natural resources. As a result it imports many of its commodities including metals, energy, and other commodities.
The Yen is known for yielding a very low interest rate because of its slow domestic growth.
It was reported that in the year 2010, nineteen percent of total trading that happened in the forex, Japanese yen was one of the components of the pair either as base currency or as quote currency. Nineteen percent is a reasonably fair share and it is because of this fact that Dollar/Yen currency pair was the second most voluminously bought and sold currency pair comprising fourteen percent of entire dealings during the year 2010.
It is well known that Japan comprises big part of global economic system wherein credit for majority of Japan’s growth goes to its exports. Because of this the Japanese government had implemented a 0 interest rate fiscal guiding principle which could help yen depreciate.
This for a while has been the phenomenon the traders are aware of this USD JPY currency pair angle. The carry trade came to a close against the emergency, which has substantially enhanced the true and rightful worth of JPY vis-à-vis the United States Dollar and some other currencies. Bank of Japan controls and administers the Japanese Yen. Bank of Japan is the institution that is finally accountable for making monetary policy related decisions.
– What Impacts the USD JPY currency Pair:
Next let us discuss both currencies as a pair and factors impacting their exchange rate and worth. It will give traders an insight into the pair to help them identify the winning trades.
The USD JPY currency pair is the second most traded currency pair forming about 14% of the total number of trades that happened on the forex platform in the year 2010. If traders would look at charts of past few years, they will notice the volatility of the Dollar USD/ Yen pair in past three years has been about 115 pips.
For quite a few years, the USD JPY pair has been influenced by the trend of the carry trade.
American exchange rates are managed and controlled with the aid of the Federal Reserve have for several years remained high compared to the Japanese rates. As a result, traders sold the yen in a big way to buy the American dollar which was working out to be more profitable proposition.
The USD JPY trader are advised to take note of the fact that as a result of crises, the disparity in interest rate has shrunk significantly, plus the carry trades are also not up to date. And with carry trades being unwounded, the value of Yen has gone up.
Unwinding of carry trades essentially indicates that traders are shifting to safer currency pairs with an aim to protect themselves from suffering financial loss.
This rise in the value of Yen is hardly a good sign for Japanese economy which is so export based. Exporters are hesitant when its time to convert their home currency into Japanese yen in order to make payments for goods exported from Japan. As a result of this economic growth takes a hit.
Traders, new to trading this pair should take a note of the fact that USD JPY pair is quoted in 2 decimal places but sometimes 3 decimals can also be found with some select brokers. The exchange rate of the pair is floating and as a result subject to the law of supply and demand on interbank forex market.
Like other central banks, the Bank of Japan also intervenes from time to time directly on the foreign exchange market to oversee and take control for the benefit of its own currency. As a result of this sometimes traders get to witness significant spikes in both directions along with movements on the pair which is the result of intervention on the part of the BoJ and which depreciates the yen, to ensure there is boost in the selling and supplying out of the country.
– Other Key Concerns:
While trading the USD JPY pair there could be several factors within a nation that can significantly impact the currency exchange rates and can question relative importance of each of these currencies.
Traders who are focusing on this pair in live environment should be aware of some of the key fundamentals. Besides government intervention in the exchange rate which is perceived as detrimental to business exports, Japan has frequently experienced natural calamities which alter the economic landscape almost always that it strikes. Traders would remember how earthquake and tsunami led to a nuclear crisis.
Inflation is another factor that should be a crucial concern for forex traders focusing on JPY. Interest Rates are another key concern area for forex traders. It has been kept low in Japan by the central bank in an effort to stimulate economic growth. Low interest rate has attracted investors to take loan from Japan to be able to invest in other countries, which is known as carry trade practice.
Perception or Observation is an important aspect as far as foreign currency traders are concerned. Perception is about how investors will see it and whether these investors or traders will perceive it as stable, safe, and sound currencies especially more so during times of political or economical instability or not.
The USD JPY cross’ total volume of trading is around eighty five percent of total of all cross currency transactions happening globally. This volume makes USD JPY cross highly valued as a leading currency pair. To buy the USD JPY a trader would be expected to study and analyze situation where the US Dollar strengthens against the Japanese Yen. If a trader decides to sell the USD JPY he would be tracking signals concerned pointing at US Dollar getting feeble compared to Jap Yen.
Supply or stream of money, rising cost of living, political standing, Gross Domestic Product, Balance of Trade numbers, and product prices – more so if the country relies on merchandise such as oil in crude form or otherwise, metals, crop growing for its GDP to some extent are some of the issues that will impact favorably or adversely rate of exchange of any currency without exception depending on combination effect all the situations.
As far as USD JPY forex trading accounts goes one thing to note is that they are not biased to either rising or falling markets like shares and stocks which are influenced by up surging prices of stock and where there is short selling to a certain extent only. On the other hand USD JPY forex traders have the opportunity to earn profit in rising as well as falling markets, assuming they have done their homework and understand the realties associated with the market.
Traders also should understand that diversifying their portfolio with USD JPY forex accounts can reduce the volatility of the portfolio, risk and increase the profit potential because low correlation exists between forex to stocks and bonds.
Another thing to remember about USD JPY currency pair is that this pair gives trader the ability to profit in any economic environment.
However as traders trade this currency pair they should also be aware of the risks related with USD JPY forex trading accounts. Market risk is ever-present when we talk about entering into USD/JPY trades. This pair involves quite a lot of risk. USD/JPY trading is carried out in the cash market and not on an exchange. Also, when it comes to USD JPY currency pair, past performance is not indicative of future results. Traders should ensure that they use only the risk capital to enter into or invest in USD JPY trading.
Trading Japanese Yen (JPY):
For past few years the Japanese Yen’s popularity has seen encouraging times especially when we talk about and compare this currency with the U.S. Dollar. What has given Yen this standing is Japan’s traditionally conformist and steady economy, along with one of the organized and methodical banking constitution worldwide. Yen undoubtedly is a currency in demand.
Yen is accepted as a benchmark for protection in this unpredictable and volatile economic environment across the globe in case of Currency Trading.
During the mid 80s Dollar was at its peak and almost since then Yen has been rising in its value steadily too. In ‘85 its rate stood at 260 Yen versus the Dollar and went to 89 Yen within a period of around 24 months.
Dollar has dealt with recuperating to an extent versus the Yen, especially because of Japanese economy softening to an extent. However, JPY has experienced an upsurge when compared to the U.S. currency and now stands at around 113 Yen for a Dollar.
Japanese Interest Rates:
It was reportedly that the low interest rates and Prime rate at which lending is happening is near to the figure of half a percent. In spite of the interest rates being so low it does not have an adverse impact on the Yen’s strength because of country’s economy that is growing steadily. Even the favorable trade balance showing against the US, which happens to be Japan’s largest business ally has been responsible to make Yen such a strong and robust world currency that it is.
Stock market disturbance that hit the market recently has also not effected Yens’ value though it has made so many other economies go weak. When we talk about economies getting hit, USA find first place in the list.
Many currencies of European countries, especially the Franc of Belgian, Lira belonging to Italy, Shilling which is Austria’s legal tender, and Peseta of Spain – as they switched from their own currency to EURO during the year 1999 they took the decision to quit 3 and 4 digit currencies. Just like the trading of Dollar/Euro pair requires on the part of the investor to maintain minimum balance; minimum balance in the account is a requirement when it comes to Dollar Yen pair too as it facilitates and enables traders and investors to trade on a margin basis.