How to Trade the Japanese Yen (JPY)

Rakan Rashed

The most popular Asian currency is definitely the Japanese Yen.  

According to the latest report of the Bank for International Payments for the forex market, the Japanese currency remains the third most traded currency in the world; it contributes to 17% of foreign exchange transactions.  

If you want to know what the Japanese Yen is, and how you can benefit from changes in the price of the Japanese Yen and the most popular pair: USDJPY, then this article is for you. Let's begin. 

What is the Japanese Yen? 

The official currency of Japan is the Japanese Yen, and it was used with the new currency law in 1871 in the hope of stabilizing the monetary system in the "country where the sun rises".  

The Yen replaces the monetary system of the Tokugawa era, a complex monetary system based on copper. The word "Yen" means a round object in Japanese, and the symbol for the Japanese Yen is JPY. 

After the devaluation of silver in 1873, the Japanese Yen has recently lost its value compared to some of its major competitors, such as the US Dollar and the Canadian Dollar, who have adopted the gold standard. 

Then, in 1987, a Yen only cost 50 cents. Japan adopted the gold standard that year, stabilizing the value of the Japanese currency. 

Japanese Yen – A Safe Haven 

In addition to being the third most traded currency in the world, after the US Dollar and the Euro, the Japanese currency is also the fourth most traded currency after the Dollar, the Euro and the British Pound.  

But perhaps most importantly, the Japanese Yen is considered a safe haven asset in times of uncertainty, along with sovereign bonds, gold and the Swiss franc. 

But what is the status of the Yen? Here are some of the factors that make Japanese Yen assets a haven in tough times: 

  • Very low-interest rates in Japan over time. This means it is very cheap to purchase Yen to fund your other investments. 
  • Japanese investors have more exposure to foreign assets than foreign investors to Japanese assets. Therefore, in times of uncertainty, the return to cash and the demand for the Japanese Yen increase. 
  • Japan is one of the largest and most developed economies in the world, and its economic system has proven to be stable. This increases the demand for Japanese government bonds in times of uncertainty. 
  • The high liquidity of the Yen. We have already mentioned that the Japanese Yen is the third most traded currency in the world. 

Therefore, when you hear about the news of periods of uncertainty such as impending economic recession, stock market crash, global pandemic, economic or political conflict, etc., you can expect big moves in the USD/JPY pair with the rest of the currencies. 

The Central Bank of Japan and the Japanese Yen 

In 1882, the Central Bank of Japan was created to control the money supply and prevent other countries from cutting the Japanese Yen. 

Since the 1990s, the Japanese economy has been suffering from a "chronic illness" due to deflation, and the Bank of Japan has launched a series of policies to counteract the country's deflationary spiral.  

In 1999, Japanese central banks began their commitment to high consumer inflation, launching the world's first quantitative easing program.  

However, the Bank of Japan’s (BoJ's) efforts have not been successful, especially since the 2008 global financial crisis.  

In 2013, the central bank merged with the Japanese government, led by Shinzo Abe, to achieve the 2% inflation target. However, the CPI is still far from the bank's targets. 

Before we get into more details on how to trade the Japanese Yen, feel free to sign up for our Forex 101 course, where you can improve your knowledge of the foreign exchange markets:

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USDJPY Analysis - Forecast of the Dollar Against the Japanese Yen 

After high volatility in the Treasury and FX markets over the past weeks, the Easter holiday is giving traders some air to breathe. 

However, the picture in the USDJPY pair looks rather interesting with the USD/JPY rising since the start of 2022. 

Technically, after a continuous rise for 7 weeks in a row, the Dollar-Yen pair reached its highest level in 20 years!  

At 128.72 on April 19, 2022, levels not seen since May 2002! Potentially, there will be a corrective bearish touch before resuming the bullish attack at 130 level. 

 

The reason for the "upside trend" is the expected pressure from the US 10-year Treasury yields to reach their highest levels since December 2018.  

The significant difference in the loose monetary policy stance of the Bank of Japan in contrast to the Federal Reserve, which was one of the main drivers of the recent rally since the beginning of April. 

And while we still consider the new wave of global financial market volatility to be risky due to the Russian-Ukrainian conflict and fears of an increase in COVID-19 cases again, the US Dollar is still the biggest and preferred gainer among investors as it has so far gained against most of the major currencies, not just the Japanese Yen. 

However, the continuation of the bullish momentum may take a resting position soon and may reverse a little for a short-term technical correction before continuing to rise.  

Technically the RSI is located above the 70 level, which is the overbought limit, which can reverse the trend as well as we can see on the chart below.  

The stochastic is also above the 80 level, which in turn can give us a signal to sell when analyzing the two indicators together and trading the prices on the upper Bollinger Bands upper line, which are also resistance lines. 

Source: Admirals MT5 - USD/JPY daily chart - between March 3, 2022 and April 19, 2022). Accessed: April 19, 2022 - Please note: Past performance is not a reliable indicator of future results or future performance.

  • The resistance levels are: 129.00, 130.00, 131.00
  • The support levels are: 126.20, 125.45, 123.45

Possible trading scenarios can be summarized as follows:

  • The main scenario - the continuation of the upward movement to the psychological level of 129.00 is possible, before continuing to the next resistance levels.
  • Alternative Scenario - A correction process after overbought at the moment and the breach of the first support level 126.20 (weekly low) and there may be a drop to 125.45 (Fibonacci retracement 23.6)

Source: Admirals MT5 - USD/JPY Weekly chart - between March 3, 2022 and April 19, 2022). Accessed: April 19, 2022 - Please note: Past performance is not a reliable indicator of future results or future performance.

A breach of any of the above-mentioned support and resistance levels could either lead to a renewal of the bullish momentum or a reversal of the trend and the formation of a new downtrend to the next Fibonacci levels and a return to the early 2022 levels around 113 and 116 JPY. But that depends a lot on economic and geopolitical developments!

So let's now get acquainted with the factors affecting the price of the Japanese Yen in the next paragraph. 

Before we continue, if you'd like to experiment with trading various currency pairs in conjunction with the Yen (JPY), feel free to sign up for a demo account - You can practice trading with virtual funds on our innovative platforms:

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What Factors Affect the Price of the Japanese Yen? 

There are fundamental factors for every currency in the world that can have a severe impact on its price. The Japanese Yen is no exception. But let's see some of the main drivers of the JPY's path: 

  • The monetary policy of the Central Bank of Japan. 
  • Financial market sentiment. 
  • Economic indicators. 
  • Geopolitical factors.

The Japanese Yen and the Monetary Policy of the Central Bank of Japan 

As you understand, for many years the central bank policy has been very expansionary, with many economic incentives such as: 

  • Negative interest rates. 
  • Asset Purchase Programs. 
  • Controlling the yield curve on government bonds. 

Yield curve control involves keeping the 10-year Japanese bond yield at around 0, while short-term interest rates remain negative. The purpose of this approach is generally a steeper yield curve, which means widening the gap between the yield of short and long-term government securities. 

The relationship between bonds (not only Japanese but also American) and the Japanese currency is strong.  

For example, it often happens when the price of US bonds goes up, i.e. Its yield decreases, and the demand for the Japanese Yen increases. The opposite may also be true. 

Negative interest rates in Japan after the 1990s meant that the Yen was too cheap to borrow.  

This encourages the use of "Carry Trading" trading strategies. Traders use the low-cost Japanese Yen to purchase high-yield assets. This allows them to earn the difference between interest rates in terms of return. 

Market Sentiment and the Japanese Yen Rate 

The Japanese Yen is one of the currencies most exposed to the prevailing market sentiment. When markets are bullish, risk appetite looks for higher-yielding assets such as companies and oil, and currencies such as the Australian, New Zealand and Canadian Dollars. Therefore, their prices rise on the back of high demand. 

On the contrary, when it comes to traders and investors, focus more on protecting their capital.  

Those who own some of the riskier assets listed above are targeting safe-haven assets with lower returns but higher safety. Exactly in this group of assets is the Japanese Yen discussed in this article. 

We can say that there is an inverse relationship between the Japanese Yen and risky assets such as stocks. Thus, the Yen has become a measure of risk appetite in the financial markets. 

Economic Data and the Japanese Yen 

Economic indicators often have a significant impact on local currency rates, but this is not entirely true of macroeconomic indicators from Japan. 

Due to the atypical monetary policy in the “country where the sun rises”, the major economic indicators do not have such a serious impact on either the JPY or the JPY against the EUR. 

However, those who trade the currency pairs pegged to the Japanese Yen are advised to keep an eye on some economic indicators so they can try to predict the BoJ's next steps. Here are some of them: 

  • Consumer Price Index 
  • Gross domestic product 
  • Industrial production 
  • Tankan indicator 

How to Trade the Japanese Yen 

The currency market (hereinafter referred to as the forex) is the market in which currencies are traded. Nearly $6 billion is traded daily across the forex market between governments, banks, corporations and speculators, according to the Bank for International Payments. 

World currencies are usually traded in pairs because, in order to express the value of one of them, it needs a corresponding currency. All currency trading is based on buying one currency while selling another. 

The first currency included in the currency pairs is called the base currency, and the second is called the quote currency. The ratio of the base currency to the quote currency is called the quote currency, which shows how much of the currency is required to buy the base currency. 

It's time to point out that the second most traded pair in the world is the USD/JPY. The other most traded currency pairs that include the Japanese Yen are: 

With the forex market specifically, with these currency pairs, it could be effective to trade the Japanese Yen.  

However, there are other options such as currency futures, but they require more capital, are less liquid, and have an expiration date. 

But let's take one example of the USD/JPY pair. It is the most traded currency pair.  

On the USD/JPY chart below, you can see how the pair traded in a wide range of 1,103 points in just over a month in 2020 and how it rose from 114.50 to 128.72 over a 7-week period in 2022. 

This higher volatility can provide traders with many opportunities to profit, but it must be remembered that the risks under similar market conditions are also higher and good risk management should be practised. 

Source: Admirals, MetaTrader 5, USDJPY, Daily Chart Data range Jan 29, 2018 - Apr 19, 2022. Created date: Apr 19, 2022. Please note that past performance does not guarantee future results.

Best Trading Hours for Japanese Yen 

  • 16:30 to 19:30 (same time as MetaTrader4/5 or WebTrader). 
  • From 2 AM to 11 AM on the MetaTrader or WebTrader platform. 

The first period refers to the trading hours of the American stock exchange. In addition to this, the second part of the European session. During these hours the highest trading volumes are recorded. 

The second period refers to the trading times of the Asian stock market, which often has an impact on the trading of the Japanese Yen. While trading in Asia, you can see interesting movements in the Dollar against the Japanese Yen. 

Trading the economic calendar attracts many forex traders because it allows them to trade just a few minutes around the hours of important economic news that sometimes generates big moves! 

Whether you are trading the Dollar or speculating on the Yen, the concept of time is important to get back to the best price or follow fundamental economic data. 

If you are trading USDJPY, you can also take advantage of moves caused by news about the Japanese Yen or the US economy through the US Dollar.  

To identify these opportunities, Admirals provides you with a Forex calendar

If you would like to experiment with our innovative MetaTrader 5 platform, click the below banner to download:

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Why is Trading the Japanese Yen Popular? 

At the beginning of this section of the article, we have already mentioned some of the main advantages of trading and investing in the cash flow of the Japanese Yen and its volatility. But let's see if there are other factors that can tip the balance in favour of forex trading in Japanese currency: 

  • You can trade currency pairs with the Japanese Yen 24 hours a day, 5 days a week. 
  • You can choose the most favourable trading periods and participate in the increased volatility. 
  • Trading with major currency pairs guarantees high liquidity with extremely fast order execution from the Admirals trading platforms. 
  • Low spreads. 
  • You can also trade in the event of rising and falling prices with CFDs. 
  • Benefit from accessing leverage up to 1:500. 

However, the Japanese Yen has its drawbacks: 

  • Currency pair trading with the participation of the Japanese Yen (USD/JPY; EUR/JPY, GBP/JPY, CHF/JPY, CAD/JPY, AUD/JPY and NZD/JPY) is subject to negative swap fees when holding open positions overnight.  
  • Using leverage in JPY trading can be dangerous when it becomes unwise to trade. 

However, there are simple solutions to these drawbacks. For example, apply strict risk management strategies to your trades in Japanese Yen (and in general trading). 

USD/JPY Trading Strategies 

If you think that the Japanese Yen will fall against the US Dollar, you can buy the USD/JPY currency pair and benefit if your prediction turns out to be correct.  

At the same time, if you expect the Japanese Yen to appreciate against the Dollar, you can sell the Dollar against the Japanese Yen and profit if you find yourself correct. Of course, if your predictions are wrong, it will lead to losses. 

But in order to be successful in the forex market in the long run, you need to have a trading strategy.  

Traders can use both fundamental and technical analysis to help make more informed trading and investment decisions. We have mentioned above some of the fundamental factors that affect the Japanese Yen, so we now turn to technical analysis. 

Determining support and resistance levels for Fibonacci indicators, identifying a trend, and using some moving averages for technical indicators, MACD, RSI and Bollinger bands are part of the technical analysis arsenal. 

Here are some tips for more successful trading in the Japanese Yen: 

  • Create a thoughtful trading plan. 
  • Analyzing the performance of the Dollar index to see the strength of the US currency. 
  • Test your trading strategy to see how reliable it is. 
  • Build risk management rules to help protect your capital. 
  • Stay disciplined all the time while trading. 

All of these forex trading tips can be applied to trading the Japanese Yen or other currency pairs that correlate with the Japanese currency.  

However, only regular practice in real-time will allow you to gain enough experience in the forex market. 

USD/JPY Trading Strategy During Technical Analysis 

In this strategy, we will use two technical indicators to analyze the Japanese Yen price chart. We will use the USD/JPY currency pair: 

  • Awesome oscillator 
  • Fractals 

First, determine the direction of the currency pair using the Bill Williams - Awesome Oscillator indicator. The indicator is below the Japanese Yen price chart and takes the form of a colour bar from level zero to indicate the direction of the Dollar / Yen as follows: 

If the oscillator moves above zero and is in green, then the Dollar-Yen pair is in a strong bullish trend 

If the oscillator moves above zero and is in red, then the Dollar-Yen pair is in a strong bearish trend 

But the signal to enter the trade will come from another Bill Williams indicator called the Fractals indicator. This indicator identifies the short-term support and resistance levels of the Japanese Yen chart in front of you. 

Looking at the price breaking the last fractal, which is the height of the chart, the price is likely to go higher 

As the price breaks the last fractal, which is at the bottom of the chart, the price is likely to go down 

Now put the above two technical indicators on the chart of the USD/JPY currency pair:

 

Source: Admirals, MetaTrader 5, USD/JPY, Daily Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals. Past performance is not necessarily indicative of future performance.

This example shows a breakout of the horizontal support line on the USD/JPY daily chart, marked by the Fractals Indicator, in a downtrend. The trend is set by the Awesome oscillator technical indicator. 

Scalping on USDJPY 

Currency pairs to trade for day traders are the major currency pairs and some prefer to use scalping strategies. Therefore, the USDJPY currency pair is one of the most speculative pairs during the American trading session. 

If you are interested in scalping, you need to know that this approach offers many opportunities in short time periods, such as 1 minute or 5 minutes.  

Be careful, you can take a lot of trades, and this does not necessarily mean more profit, it all depends on the conditions of the forex market and your trading strategy. 

Intraday Trading on USDJPY 

Just like scalping, USDJPY day trading also aims to profit from daily price movements. Closing all trades before the end of the day is another similar element between the two approaches. 

The point that separates day trading and scalping is basically the number of trades and the timeframes you are running. A day trader is unlikely to go to the chart for less than 5 minutes, while scalpers can use this chart more often, even the smaller ones. 

Swing Trading on USDJPY

If you already have a full-time job, you will not have time to spend a few hours a day trading USDJPY and other currency pairs. The solution is at your fingertips and it's called swing trading

Swing trading approaches an investment where the traders who practice it do not have to spend a lot of time in front of the screens tracking the chart.  

This type of trading can allow you to find suitable trading options for longer time frames, in most cases over four hours, including daily and weekly charts.  

Fewer trading opportunities can be found in these time frames, but they are often of better quality. 

Correlation of the USDJPY with Other Instruments 

In the financial and investment field, correlation is an indicator that measures the dependence on the price movement of two financial assets.  

Calculated as a correlation coefficient, the value can vary between 1 and -1. Correlations are frequently used to manage a portfolio of financial assets and derivatives.  

When it comes to currency correlation, it is about the relationship between two particular currency pairs.  

A correlation of 1 means that the two currency pairs are perfectly correlated and that their prices move in the same direction at the time.  

Conversely, when the movements of the currency pairs are completely opposite, the value of the currency correlation is -1.  

In the chart below, you can see the long-term correlation (500 candles in the daily chart) of the currency pairs that include the Japanese Yen - USD/JPY and EUR/JPY with other financial instruments such as stock indices, oil and gold

Disclaimer: The charts of the financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument offered by Admirals. Past performance is not necessarily indicative of future performance.

You can identify stronger, direct and inverse relationships between different types of assets: 

  • The currency pairs USDJPY and EURJPY correlate with each other 
  • USDJPY and EURJPY are inversely correlated with gold, proving that asylum assets such as the Japanese Yen and gold move together 

It should be noted that the basic principle is that the Swiss Franc, gold and Japanese Yen move in one direction as safe haven assets.  

Meanwhile, stock indices such as the SP500, Dow Jones and DAX 30, as well as currencies such as AUD, NZD and CAD, are inversely correlated with safe-havens. Of course, there is no guarantee that this will happen in any time frame and at every period. 

How to Buy Japanese Yen 

  • Log in to your Admirals account (WebTrader / MetaTrader 4 / MetaTrader 5, or the Mobile app
  • Go to the Market Watch tab 
  • Find the USDJPY currency pair 
  • Right-click on the currency pair, then select "Chart New Window" 
  • Once the chart appears, click on the "New Order" button and select the lot (contract size) 
  • Click the Buy By Market button. 

How to Sell the Japanese Yen 

In the same way, but in reverse of the previous process: 

  • Log in to your Admirals account (WebTrader / MetaTrader 4 / MetaTrader 5, or the Mobile app)  
  • Go to the Market Watch tab 
  • Find the USDJPY currency pair 
  • Right-click on the currency pair, then select "Chart New Window" 
  • Once the chart appears, click on the "New Order" button and select the lot (contract size) 
  • Click the Sell By Market button. 

How to Trade the Japanese Yen at Admirals

You can start trading in Japanese Yen with USD/JPY, EUR/JPY and other currency pairs in just three simple steps: 

For more information on how to open a trading account with Admirals, watch the following short video:

Trade the Japanese Yen: Conclusion 

The Japanese Yen is the most popular Asian currency and is considered a safe-haven currency. Oftentimes, the Yen rises in times of uncertainty such as financial crises, economic recessions, pandemics, geopolitical conflicts, etc. 

BoJ decisions, market sentiment and economic news from Japan are the main factors affecting the price of the Japanese Yen. With Euro Yen, Dollar Yen, etc., you can trade in the international forex market. 

Admirals gives you the opportunity to trade all these currency pairs and more on the popular MetaTrader platforms. This will allow you to apply your opinions about the price of the Japanese currency and attempt to place positions on the changes in the Japanese Yen. 

We hope that this article was useful to you and helped you learn about the Japanese Yen and how to both trade and invest in it. 

If you feel comfortable and informed enough to start live trading, click the banner below to open a live account:

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Can I Trade Japanese Yen?

Trading the Japanese Yen, or JPY, is considered difficult, however, it can be traded at both Long and Short price directions using forex Contract for Difference (CFDs) financial products. Please be sure to stick to your trading strategy when doing so, as well as manage your risk.

Is the Japanese Yen a Good Investment?

This type of question is always subjective, however, generally speaking, the Yen is considered a good investment as it also falls under the category of a safe-haven asset.

How Can I Trade the Japanese Yen?

If you would like to trade the Japanese Yen (JPY) against currencies like USD, Euro, GBP, among others, you can do so by registering with a reputable online broker. It is important to always review the broker's TrustPilot score beforehand.

INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals and Admirals trademarks (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on the Rakan Rashid, Financial Analyst & Writer, personal estimations.
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.

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