USD/JPY Currency Pair – Overview
The USD/JPY currency pair, which is part of the ‘Majors’ category, is the second most liquid currency pair in the world and it is potentially suitable for both beginner and experienced traders. The pair shows how many Japanese yen (JPY – the Quote currency) are needed to purchase one U.S. dollar (USD – the base currency). Trading the USD/JPY currency pair is also referred to as trading the “gopher”.
The interest rate of the U.S dollar is set by the central bank of the United States – the Federal Reserve. This happens eight times per year and it is publicly released by the Federal Open Markets Committee (FOMC). The interest rate determines the value of the US currency, as well as indicates the state of the country’s economic health.
On the other hand, in Japan, the interest rate is set by the Bank of Japan’s (BoJ) Policy Board in its Monetary Policy Meetings. The difference between the interest rates of the two countries affects the value of the USD and JPY when compared to each other.
How to trade the USD/JPY Currency Pair
First of all, you need to find an online forex broker with a platform and services tailored to satisfy all of your trading needs. TradeFW is a licensed and regulated broker which sees the needs of its traders as a top priority. Our user-friendly MT4 platform (iOS, Android, Desktop) will provide you with the best instruments and advanced charts. More than that, the account types (Standard, VIP) we offer are adjustable to your budget and level of experience; and we provide you with a team of professionals to help and guide you throughout the entire process.
After opening an account with an online forex broker, the next step is to choose the right time to trade this pair. The forex market is open and active all the time, but in order to maximize the efficiency, you need to consider when the USD/JPY pair is the most active.
Typically, trading between 12:00 – 15:00 GMT, when the New York and London Exchanges are open, is the time to day-trade this pair, as over this period, the USD/JPY sees the most action. Due to time zone differences, it’s hard to pinpoint more clear and good schedules.
However, the best thing to do is try to avoid day trading during low volatility times and check the volatility statistics in order to see which times are the most active and in which ones the pip movement is ‘quiet’.
Now, it’s time to place the trade! There are only a few steps to follow that will bring you the long-awaited trading opportunities:
1. Check the ratio of your leverage value.
2. Select the trading tool (FX/CFD).
3. Select the USD/JPY currency pair and the trading volume you wish.
4. Select the ‘Stop-Loss’ Order.
5. Opt for ‘SELL’ or ‘BUY’ to open a trading position.
6. Monitor the USD/JPY chart and exit the position when you wish.
In addition, to put the safety of your capital above anything else, TradeFW offers you Negative Balance Protection to make sure that any trading losses you may incur cannot exceed the funds in your account. Also, we keep your capital in EU credit institutions.
Factors that drive the USD/JPY Currency Pair
In order to trade this pair in an efficient way, you need to know and study the factors that drive its value. First of all, look at the economy of the both countries: the interest rates, the GDP, the unemployment rate, the Consumer Price Index (CPI), and the inflation. Other characteristic factors are equally important. For example, around 17.7% of Japan’s GDP is based on exports of goods and services1 and most of its most important corporations are some of the world’s leading brands (Sony, Toyota, or Nissan).
Other aspects you need to check before opening a trading position are the international news, and the political, diplomatic and social climate in both countries. Also, how the value of the currencies in correlation with others can also be a useful point to research.
Trading Strategies for the USD/JPY Currency Pair
1. Carry Trade Strategy: is probably the most efficient for this currency pair and selling the JPY as part of the carry trade is a popular strategy among traders. However, the popularity of the yen carry trade depends on the state of the global financial market; and when the popularity of the global market volatility increases, the yen carry trade diminishes. The created buying pressure leads to an appreciation in the JPY in report to the USD and other currencies.
2. Reading the Interest Rates Strategy: can be quite effective in this case. As the central banks decisions of the two countries can move the value of the currencies, as well as the economy and inflation; they have a great impact on the forex market and implicitly, the USD/JPY currency pair.
3. Trading the Market Sentiment Strategy: implies ‘reading’ what the forex market says about the currency pair and acting based on it.
All in all, any trade is built from all of the above pieces. Gaining trading experience takes time; it takes practice, patience, experience and a chain of good choices. One thing we’re certain about is that TradeFW is always an excellent choice!