Guide to Forex Trading – Japanese Yen to US Dollar
The Dollar to Yen currency pairing is the 2nd most liquid in the world. This currency pair often spends some considerable time idling along at a particular level before there will be a sudden rapid movement to a different price level. This behaviour means that trading the USD/JPY pairing requires some serious patience on behalf of the trader, although it is pretty simple to set up a trade with their pair. An investor who is interested in trading the JPY/USD pair simply needs to view a daily or monthly Yen price chart to observe the overall trend of the currency in order to determine in which direction it is likely to head next. Historically the range of the USDJPY pair can range from an average low of 130 up to a high of around 85. The Yen most frequently moves in one direction either towards 85 or 130. The Japanese Yen is the 3rd major international currency and represents the globe’s second largest economy in terms of its GDP following the United States. The result of this is that the USD/JPY pair is extremely liquid.
Information About the Japanese Yen
Over 40% of Japan’s economic activity is from exports and in general, the Japanese government prefers the Yen to remain weak in order to boost export sales overseas. Due to this, the Bank of Japan (the country’s central bank) adopts measures to maintain the competitiveness of Japanese companies overseas by keeping its currency at a certain weaker level. The Yen is a hub for the direction of most other Asian currencies. For example, should there be rumours that the Chinese Yuan will face government revaluation, the move will be mirrored by the Japanese Yen which will move in the same direction. The savings rate is also high in Japan, being 15%, when compared to the savings rate in the United States which stands at -1%. This informs us that Japanese asset managers and banks are in possession of a greater amount of funds that they can invest. There are several different important economic data reports issued by the Japan including interest rate decisions published by the Bank of Japan, the Tankan Report, the Domestic Corporate Goods Price Index and the Tokyo area CPI.
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Facts About the United States Dollar
The US Dollar has a very specific and unique function within the world of international finance. This currency is the most commonly accepted for global reserves and is frequently used in the settlement of international financial transactions. Central banks all over the world hold a great amount of their foreign currency reserves in this currency, and numerous small countries prefer to adopt the US Dollar instead of using a currency of their own, or at the very least peg their own currency to the US Dollar. Gold prices are set in US Dollars as are the prices of numerous other popular commodities, and the American Dollar is also the currency chosen when OPEC countries are conducting oil transactions. All of these varied factors contribute to the US Dollar’s status as the world’s most important currency as well as the most frequently traded currency in the world. Most foreign currencies trade against the US Dollar more often than any other currency pairing. All keen Forex traders should therefore take the time to gain a greater understanding of the various factors which are driving forces in the American economy before embarking upon their first trade.
Which Factors Affect the Dollar to Yen Pairing?
There are several factors which affect the Japanese Yen to US Dollar pairing. These include:
- The economies of both countries – the currency pair functions in correspondence to the Japanese and US economies relationship to each other, and also in a lesser way to how well the Asian economies are doing in relation to the US economy. When there is economic upset within the United States, the Yen will see a rise, whereas when the situation is reversed, of course the US Dollar will rise. Usually, both the Yen and the Dollar are from significant enough economies that they will only be influenced by major economic and global events.
- The Import/Export Balance in Japan – Generally the USD JPY pairing tends to incline towards the US Dollar when Japan imports more than it exports as the Japanese economy will weaken when it buys more than it sells. Japan is one of the world’s major exporters, and therefore its trading exploits are always important in terms of the US Dollar/Japanese Yen’s growth.
- National Disasters – Japan’s economy is uniquely affected by national disasters because of the country’s size. On the whole, the United States’ economy is not so affected by any natural disaster which may befall the country.
- Slow growth of the Yen – the Yen is a slow growing currency in a period of stagnation which is usually outpaced by the US economy. This trend is likely to continue and for some time, the Yen has had a downward trend when related to the Dollar.
- Government Intervention – the Japanese government is working hard and adopting numerous initiatives to improve the country’s economy. It is therefore essential to pay attention to the actions of the country’s government if you wish to invest in this market as these initiatives may alter the currency’s course significantly through the adjustment of interest rates.
Benefits of Trading the USD/JPY Pairing
There are numerous benefits of choosing to trade this currency pairing which accounts for why this is such a popular choice among Forex traders:
- Popularity and Market Volume – the USD/JPY pairing has very high market volume and as it is very popular it is supported by almost every broker and market.
- Opportunities for Profit – this pairing is characterised by extended times of stability together with volatility, creating potential for investors. Volatility with this pairing is usually driven by market forces in Asia and this makes the USD/JPY pairing a gateway currency to the east.
- Lower Spreads – the US Dollar/Japanese Yen pairing is popular thanks to its low spreads. Fees for trading these currencies are also pretty low which results in better profits. High liquidity with this pairing means trading is quick and cheap.
- Predictability in Trading Patterns – this market is linked with Japanese commodity trading, making it simpler to predict the currency. Investors should look to the current export and important global market to spot potential strategies for trading.
There are, however, some challenges when trading this pair. The Yen sometimes fluctuates rapidly as it is a closed economy, and if a natural disaster affects the country, the devastation to the nation’s economy is decisive and rapid making trading this pairing a little risky.