|Member Sentiment Bearish|
Live and Historical USD/JPY Rates
This chart represents the value of the United States dollar (USD) against the value of the Japanese Yen (JPY) - in other words, how many yen are needed to purchase one dollar. Both JPY and USD are major currencies. USD/JPY forms a major pair, but it does not form a commodity pair.
The U.S Dollar
Though many currencies share the name dollar, the US dollar is the strongest currency in the world. Important commodities like oil and gold are traded exclusively in the dollar. Some businesses trade their stocks exclusively in the dollar as well. Its value is controlled very closely by the Federal Reserve's adjustment of dollar lending interest rates. At one time, the Chinese Yuan was pegged to the dollar, and for a time the US was willing to endure the stress of that conflicted relationship to maintain that situation. The dollar is the premier reserve currency, holding almost two times the value of its closest competitor, the euro.
The Japanese Yen
From a volume perspective, the Japanese Yen is the third heaviest in volume, well behind both the U.S. Dollar and Euro, respectively. This positioning is a testament to the success of the export trade of Japan on a global basis, when its population is but 40% of the United States. The most favored pairing is the “USD/JPY” combination. It commands roughly 17% of daily forex volume, second only to the “EUR/USD” pair at 28% and ahead of the “GBP/USD”, which stands in third at 14%.
When the Japanese Yen is used in currency combinations, the pip is in the second place (.01) as opposed to the usual fourth place (.0001). The Japanese Yen has had a floating interest rate since 1973. Like the USD's Federal Reserve, the Bank of Japan (BOJ) maintains tight command over the Japanese Yen. In the decades following 1990, The Bank of Japan used its power to keep interest rates low on the Yen, thereby boosting the Yen's popularity as a carry currency and accomplishing the purpose of growing investment in Japanese assets.
The Japanese economy has been mired in two long decades of minimal growth, but its new administration in 2012, in combination with the BOJ, pursued an aggressive policy of quantitative easing to weaken the Yen and stimulate demand for its export trade. These types of major monetary policy moves are highly unusual for the BOJ. The Yen depreciated some 30% over six months, leading to threats of currency wars from their major trading partners. The stimulus plan, however, has worked, and the Japanese economy is now experiencing a very positive GDP growth phase in 2013.
Traders often prefer to trade this currency due to its stability and the cautious nature of the BOJ. For this reason, it has also been the trader’s choice as a base currency when contemplating a “carry trade” strategy. Many of these trades, however, were unwound over night after the major earthquake a few years back. Companies and individuals suddenly repatriated overseas investments and profits, creating heavy buying demand for the Yen. Strengthening moves on the part of a base currency in a carry trade can cause massive losses if the positions are not properly hedged or unwound quickly.
Like other currency pairs, the USD/JPY pair has a unique “personality” for many reasons. Here are a few of them:
- The movement in the Yen correlates well with changes in the 10-Year Treasury Note index. When a crisis strikes, the Yen can become a preferred safe haven, just like precious metals or U.S. Treasuries.
- Traders sometimes regard the Yen as a proxy for trading in the Chinese Yuan. Changes in the Yuan are controlled by the government, but only after pressure has built up in the market. The Yen will reflect these expectations.
- The Yen tends to be overly sensitive to political events since the Japanese export trade is so ubiquitous across the globe.
- The USD/JPY pair also tends to be more consistent in its pricing movements, another reason that beginners prefer this trading pair. The cautiousness of the BOJ and their natural desire for consensus before action instills predictability that some refer to as a herd instinct. In other words, the Euro is known for many head-fakes before it makes up its mind, but the Yen will proceed in a more expected trajectory, without a preponderance of false breakouts.
For traders interested in the USD/JPY pair, it would behoove them to study up on Candlestick formations and the Ichimoku trading system, especially anything to do with the Kumo Cloud and its ramifications. Forex commentary in the region often speaks to how these technical tools are responding to market conditions. Asian traders base many of their insights on these methods, as well. The daily trading range may be a bit less than more volatile currencies like the Euro and the Pound, but the best time to trade is during the Asian trading sessions, when liquidity is at its highest. You may witness a drop in liquidity on the last day of each month when major institutions choose to be absent in the market for whatever reason.
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