Trading the currency pair USD/JPY (US Dollar against the Japanese Yen) is considered one of the most popular currency pairs in the Forex market. Here are some tips that may be useful when trading this pair:
1 Understand economic fundamentals: The impact of economic events on the US dollar and Japanese yen can be significant. These events include US and Japanese economic indicators, monetary policy decisions, and international trade.
- Follow the news: Economic and political news are an important driver of currency price fluctuations. Follow the news regularly to ensure you are aware of any developments that may affect USD/JPY.
3Use technical analysis: Using charts and technical indicators can help identify potential price trends and potential entry and exit points.
4Capital Management: Set trading volume to be proportional to your capital and risk tolerance level. Avoid excessive risks in every trade.
- Follow trading sessions: Greater fluctuations can appear during certain trading sessions. You should know when the markets open and close to adjust your strategy accordingly.
6Use stop loss and profit orders: Use stop loss orders to determine the levels that your deal cannot exceed at a loss, and also use profit orders to take profits when the price reaches certain levels.
7Be careful during periods of big news: USD/JPY prices may witness significant fluctuations during the release of major economic reports, so it is best to avoid periods of news if you do not like dealing with large fluctuations. Each trader must rely on his own strategy and be careful and ready to adapt his strategy based on developments in the market.
The Japanese yen stands out as the top Asian currency, ranking third globally in forex trading with a share of 17% according to the latest report from the Bank of International Payments.
How to trade the dollar, the Japanese yen, the Japanese yen
In 1882, the Central Bank of Japan was created to control the money supply and prevent other countries from cutting off the Japanese yen. Since the 1990s, the Japanese economy has been suffering from a “chronic illness” caused by deflation, and the Bank of Japan has launched a series of policies to counter the country’s deflationary spiral. In 1999, Japanese central banks began their commitment to rising consumer inflation, launching the world’s first quantitative easing program.
However, the BOJ’s efforts have not been successful, especially since the 2008 global financial crisis. In 2013, the central bank merged with the Japanese government, led by Shinzo Abe, to achieve a 2% inflation target. However, the CPI is still far from the bank’s targets.
Why is the Japanese yen low? The reason for our “bullish trend” on the USD/JPY pair is the expected pressure from the US 10-year Treasury bond yields reaching their highest levels since December 2018, and the significant difference in the Bank of Japan’s accommodative monetary policy stance in contrast to the hawkish Federal Reserve, which has been One of the main drivers of the recent rise since the beginning of April, which in the same way explains why the Japanese Yen is currently low.
While we still consider that the new wave of global financial market fluctuations is harmful to risk due to the Russian-Ukrainian conflict and fears of an increase in Covid-19 cases again, the US dollar is still the biggest winner and the favorite among investors, as it has risen so far against most major currencies, not just the Japanese yen. .
However, the continuation of the upward momentum may take a resting position soon and may reverse slightly for a short-term technical correction before continuing the rise.
How to trade the dollar/yen and what factors affect the price of the Japanese yen?
There are fundamental factors for every currency in the world that can have a severe impact on its price. The Japanese yen is no exception. But let’s see some of the main drivers of the Japanese Yen’s path:
- The monetary policy of the Central Bank of Japan.
- Financial market sentiment.
- Economic indicators.
- Geopolitical factors
The Japanese Yen and the Monetary Policy of the Bank of Japan: For many years the central bank’s policy has been very expansionary, with many economic stimulus such as:
- Negative interest rates
- Asset purchase programs
- Controlling the yield curve on government bonds.
Yield curve control involves keeping the 10-year Japanese bond yield at around 0, while short-term interest rates remain negative. The purpose of this approach is generally a steeper yield curve, which means a wider gap between the yield of short-term and long-term government securities.
The relationship between bonds (not only Japanese, but also American) and the Japanese currency is strong. For example, it often happens when the price of US bonds rises, ie. Its yield decreases, the demand for the Japanese yen increases. The opposite may also be true.
Negative interest rates in Japan after the 1990s mean that the yen is very cheap to borrow. This encourages the use of “carry trading” strategies. Traders use the low-cost Japanese yen to buy high-yielding assets. This allows them to earn the difference between interest rates in terms of yield.
Market sentiment and the price of the Japanese yen
The Japanese yen is one of the currencies most exposed to the prevailing market sentiment. When markets are optimistic, risk appetite looks for high-yielding assets such as companies, oil and currencies such as the Australian, New Zealand and Canadian dollars. Therefore, their prices rise due to high demand.
How to trade the dollar, yen, economic data and the Japanese yen
Economic indicators often have a significant impact on local currency rates, but this is not entirely true of macroeconomic indicators from Japan.
Due to the atypical monetary policy in the “country where the sun shines”, the main economic indicators do not have such a serious impact on the USD/JPY or JPY/EUR pair.
However, those who trade currency pairs linked to the Japanese Yen are advised to monitor some economic indicators so that they can try to predict the next steps of the Bank of Japan. Here are some of them:
- Consumer price index
- gross domestic product
- Industrial production
What is the Japanese yen? The official currency of Japan is the Japanese yen, which was introduced with a new currency law in 1871 in the hope of stabilizing the monetary system in “the country where the sun shines.” The yen replaces the monetary system of the Tokugawa era, a complex monetary system based on copper. The word “yen” means a round object in Japanese, and the symbol for the Japanese yen is JPY.
After the devaluation of silver in 1873, the Japanese yen has recently lost value compared to some of its major competitors, such as the US dollar and the Canadian dollar, which have adopted the gold standard. Then, in 1987, the yen cost just 50 cents. Japan adopted the gold standard that year, stabilizing the value of the Japanese currency.
The Japanese yen – one of the safe havens: Being the most traded currency in the world, after the US dollar and the euro, the Japanese currency is also the fourth reserve currency after the dollar, the euro and the pound sterling. But perhaps more importantly, the Japanese yen is considered a safe haven asset in times of uncertainty, along with sovereign bonds, gold and the Swiss franc.