Peculiarities of trading on currency pairs with the Japanese yen
The Japanese yen is the third most popular world reserve currency after the dollar and the euro and is one of the most popular currencies for trading in the foreign exchange market. Like every currency on the market, it has its own peculiarities, understanding which will help to increase the efficiency of trading in currency pairs with yen.
A Brief History of the Japanese Yen
The Japanese yen was put into circulation during the Seiji era and was originally equal to 1.5 grams of gold. The gold standard was canceled and reintroduced several times, depending on the economic situation in Japan.
In May 1953, the Japanese yen received the status of international currency, the IMF defined its parity of 2.5 mg of gold. From 1949 to 1971, the yen was tightly pegged to the U.S. dollar: 1 U.S. dollar was equal to 360 Japanese yen. As a result of several revaluations that were linked to the dollar and other world currencies, the value of the yen rose substantially.
As reserve currency The Japanese yen traditionally ranked second after the dollar, but recently its importance in this application has decreased slightly. The share of the Japanese yen in the foreign exchange reserves of countries is approximately 4%.
Japanese yen at
Due to the fact that the yen is a freely convertible currency, its exchange rate is determined by supply and demand levels. The yen successfully competes with the British pound and the Swiss franc; the Japanese currency accounts for 12% of total turnover on the foreign exchange market.
There are several reasons for the popularity of the yen:
- The Bank of Japan's low interest rate of 0.1%, which makes it possible to use the yen as a quoted currency for Carry Trade strategies.
- The main movements on the yen occur during the Asian trading session, which corresponds to the night time, which eliminates the influence of the news background from Europe on the dynamics of the Japanese yen.
- The relative cheapness of the Japanese yen. The purchase of 1 standard lot of the currency pair USD/JPY at a leverage of 1:100 at current exchange rates is about $ 1000.
- The volatility of the Japanese yen during the Asian session is high enough to make a profit.
- Japan is a global exporter of goods. In this regard, the Japanese government is pursuing a deliberate policy to reduce the value of the yen.
Peculiarities of trading currency pairs with the Japanese yen
- Unlike the standard 0.0001 (for four-digit) and 0.00001 (for five-digit) quotes, quotes with the Japanese yen have two less digits. For example, the EUR/JPY quote looks like 138.97 for a broker with four-digit quotes, and 138.970 for a broker with five-digit quotes.
- The Japanese yen in currency pairs is a quoted currency. That is, positive events and economic releases for the yen lead to a decrease in currency pairs with Japanese currency, and vice versa.
- The most commonly traded currency pairs with the yen are USD/JPY, EUR/JPY, GBP/JPY and AUD/JPY. All these pairs are highly volatile. During the trading session price change of GBP/JPY currency pair can reach 200 pips.
- The best time to trade currency pairs with the yen is considered the European session. Firstly, in Europe, as well as in Russia, Ukraine and Belarus it is daylight hours, i.e. working day, and secondly, at this time traders are insured against sharp price changes, as the Bank of Japan at this time currency intervention never does.
- When trading yen pairs you should first of all pay attention to the statistics reflecting export and import volumes, energy prices, inflation indicators as well as economic and political events in Japan.