Guide to Trading EUR to JPY
In Forex trading, one of the most popular currency pairs for trading for both experienced and novice traders is the EUR/JPY pairing. The Japanese Yen and Euro are a significant currency pairing as they represent almost 3% of all daily transactions on the worldwide foreign currency exchange market and the EURJPY pair is actually the seventh most traded pair of all currencies in the world. This is a popular pairing due to the interesting and volatile nature of these currencies on the financial market. It is possible for an investor to make a significant profit when trading in this pair within just a short space of time, making this pairing especially suitable for traders who prefer scalping. In the past, its volatility is such that it has reached almost 210 pips within its history.
Guide to the Japanese Yen
The Yen is the Japanese currency and is the 3rd most widely traded currency in the world after the US Dollar and the Euro. It is also the fourth reserve currency after the US Dollar, Euro and Pound Sterling and is one of the most stable and strong currencies within the Forex market. For the last decade, the Japanese government have kept interest rates low which adds to the appeal of this currency for trading. The Japanese economy is based primarily on exports, with some of their biggest and best known companies such as Sony, Honda and Nissan being known all over the world. Almost half of the country’s economic activity comes from exportation and the Yen is kept relatively weak by the government who prefer to do this in order to encourage overseas sales. Therefore, the nation’s central bank, the Bank of Japan (or BoJ), takes measures to ensure Japanese companies remain competitive in their trades abroad by keeping their currency at a weaker level. The Yen forms the point of reference for the majority of other Asian currencies too, so for example, if the Chinese Yuan is going to be revalued, the Yen too will follow suit. Japan also has a relatively high savings rate, especially when compared to that of the United States where the savings rate currently stands at -1%. There are numerous important Japanese data reports to which keen traders should pay close attention before executing their trades. These include the Tankan Report, the Tokyo Area CPI and the Bank of Japan interest rate decisions.
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The European Union and the Euro
The EU, or European Union, represents the world’s largest economic region with a GDP of more than $13 trillion. Like the United States, the economy of the European Union has a heavy focus on the service industry, although a larger proportion of their GDP is represented by manufacturing than is found in the American economy. Overall, when EU economic activity is strong, the Euro currency will gather in strength, with weakening of the Euro taking place whenever the EU sees a slow down in its economy. The Euro is a unique currency in the financial markets as it represents more than one country. The European area covered by the EUR currency is known as the Eurozone or the European and Economic Monetary Union (EMU). The single currency applies to no less than 16 countries within the Eurozone with the current members being:
- The Netherlands
Naturally, there are occasional disagreements between the different countries’ governments within the EU over the future direction of the union and its policies over economic issues. During these periods, there is generally a weakening in the Euro.
Which Factors Affect Trading the EUR/JPY Pair?
There are numerous factors which come into play to affect the relationship between the Japanese Yen and the Euro. These include the following:
- The economies of Japan and the Eurozone – the interaction between this currency pair will function in correspondence to the Eurozone’s relationship with the Japanese economy and also in a minor way to the rest of Asia’s economy in relation to Europe. Economic instability within Europe will see a rise in the Yen whereas when the reverse is true, the Euro will be stronger.
- The Balance of Imports and Exports in Japan – Japan is a key world exporter of goods and therefore how effective its trading is will always be important when trading this currency.
- Natural Disasters – Due to the size of the country, it is very easy for national and natural disasters to have a serious impact upon the economy of Japan.
- Slow growth in the Yen’s value – the Yen has long been a slow growing currency and this is a trend which looks set to continue for the near future.
- Japanese Government Intervention – the government of Japan is implementing several economic initiatives in order to make improvements to the nation’s economy. When investing in this market, it is important for traders to pay close attention to the Bank of Japan’s interest rates and any government actions as these will have a major influence upon the course of the Japanese Yen.
- Instability in the EU – another factor to take into account when trading the EUR to JPY is any political instability which is occurring within the European Union itself. The Euro is a relatively new currency having only been introduced just before the turn of the Millennium and the result of this is that there are inevitably some disagreements between differing Eurozone country’s governments when it comes to monetary policies. These differences may sometimes be seen as a threat to the future stability of the EMU and when this happens, the Euro will weaken in relation to other currencies include the JPY. It is therefore crucial for any investor with an interest in trading the EUR/JPY pairing to pay close attention to economic data releases from the Eurozone as well as political news that could indicate disagreements and unrest within the EMU area that could lead to devaluing of the Euro.