USD/JPY - A Report Brought to You by Q8 Trade
The USD/JPY pair is one of the most important Forex pairs accounting for more than 20% of the traded pairs in the world.
The pair refers to the trading of currencies in the world’s largest economy, the US dollar (US) and the Japanese yen, the third largest economy in the world (Japan). It gained popularity and trading volumes among traders in the foreign exchange market.
A historical analysis of the USD/JPY
Japan may lack natural resources and vast geographical space but its work ethic and success in technology, especially those of industrialization, has led to its economic prosperity and the damage it has done in the wake of the Second World War. Now, the Japanese economy is the largest after the United States of America and China.
Despite this, the Japanese economy has been through hard times since the early 1990s due to stock bubbles and the real estate crisis which has slowed Japan’s economy and caused a major downturn.
The Japanese government has tried to cooperate with the Bank of Japan to take new measures to revive the economy in the past 20 years. Not all of them have succeeded but at least some have managed to maintain their position among the world’s three largest economies and have become a key market player.
Since the Japanese Yen was launched in 1871, it is booming as it was and still is the most traded currency in Asia and the third in the world after the US currency and the European single currency.
What has increased the yen’s popularity is the steps taken by the state to maintain low interest rates in order to stimulate and support the Japanese economy to make the yen more popular as investors accept the sale of the yen to buy high yielding currencies, but at the same time, they accept to buy it in times of crisis as a safe haven asset.
And in recent years, the US dollar against the Japanese Yen saw large fluctuations.
Here are some facts about this pair in recent years:
- The yen saw the largest increase in trading activity compared to other major currencies, up 63% from 2010.
- The US Dollar captured 87% of currency pairs traded in the Forex market in general.
- In 2013, the US dollar against the Japanese yen dominated 18.3% of the total value traded in the market, up 4% in 3 years.
It is very easy to focus your attention on the strength and role of the US dollar. However, the Japanese yen also plays a vital role. This is because it is the most liquid currency in Asia. Making it a measure of Asian economic growth.
In times of instability and economic volatility in Asia, traders often react to buy or sell the yen because other Asian currencies are more challenging to trade.
The pair is also trading in such a large volume because of the low-interest rates on the yen. In recent years, the Bank of Japan has bought a large amount of yen to increase inflation. As a result, the yen depreciated and money supply increased. This has led to an increase in exports as well as import and commodity prices.
The yen is classified as the third currency traded in the world after the US dollar and the euro, but it is also ranked fourth in reserve currencies after the dollar, the euro and the pound sterling.
How is the value of the USD/JPY pair determined?
The value is determined by the value of the dollar. If the dollar equals 110 yen, you need 110 yen to buy $1. Of course, this value changes almost instantaneously during the five trading days from Monday to Friday.
What makes the USD/JPY pair interesting to trade?
The yen is one of the safe haven currencies which makes it attractive to traders and investors especially during times of crisis. A good example of this was during the global economic crisis. As some major US banks collapsed and the recession dominated the world, 38% during 2007-2011 and 52% against other major currencies such as the Euro and the Pound.
Why is the yen a safe haven currency?
There are many reasons why the yen has become a safe haven for traders around the world.
- Low-interest rates: When an investor seeks to borrow for investment, the first thing he thinks about is interest rates. The Japanese central bank offers lower interest rates than other central banks. Therefore, investors borrow money in Japanese currency and then convert it to the currency of the country they want to invest in. In the event of any problems or crises, many investors decide to stop their investments and repay the loans they have received.
- Japan’s economy is the world’s third-largest so Japan’s economic decision-makers are trying to maintain economic growth and currency strength.
- Japan is one of the biggest creditors in the world: That’s why the yen is a safe haven. Japan has given and still gives many investors loans for investment purposes in other countries, compared to the investments received, and in the event of a collapse of the global stock markets, the markets are in a state of sale of foreign assets and at this time, the demand for the Japanese yen to return money to its main source.
Is trading the USD/JPY pair profitable?
The pair is the second most traded currency pair on the Forex market so it is certainly profitable. But why?
- Has relatively low margins: The dollar-yen is very popular due to the relatively low spread of supply prices.
- Volatility: The pair is heavily exposed to volatility which is often caused by Asian market forces so opportunities are great for traders to profit.
- Suitable for beginners: Every day, thousands of people enter the Forex market in a new way and this pair is suitable for beginners because of the liquidity it enjoys and the availability of resources.
- Large volume: The pair is trading heavily in the huge market, increasing liquidity and making it easy to find any data or reports that may affect its trading.
- Flexible trading options: You can make profits from a variety of sources including trading openly or popular trading vehicles including futures, ETFs and others.
However, before deciding which currency pair you would like to trade, we highly encourage you to learn more about what would you get from the platform that you choose to trade with and what are the advantages you will be getting from choosing a certain platform over another.
What are the factors affecting the performance of the USD/JPY currency?
The strength of the economy: The most important factors affecting the performance of the US dollar against the Japanese yen is the strength of the economy. When the US economy suffers, the greenback falls and vice versa. Unemployment, wage growth, and industrial production are just some of the key economic indicators.
Japan’s national disaster: Given its geographical location, natural disasters can have a major impact which indirectly affects the performance of the dollar against the Japanese yen.
Japanese imports versus exports: When the Japanese import more than they export, the US dollar strengthens against the yen, buying more than they sell. Other relations with countries can also affect this pair especially as Japan is one of the big exporters, especially to China.
Government economic decisions: The Government has introduced a number of initiatives to support the economy. Traders should, therefore, focus closely on any urgent news regarding new measures such as changes in interest rates, quantitative easing, and inflation.
The pace of currency growth – overall: The US economy is growing much faster than the Japanese economy. In recent years, the yen has been growing slowly. As a result, there has been a steady downward trend against the US dollar.
How can you trade the USD/JPY pair via CFDs?
Many traders prefer to trade the US dollar against the Japanese Yen through CFDs as it increases their ability to speculate on the movement of this pair without actually owning the currency.
Because the pair has high volumes and liquidity, it is a common option when traders decide to invest in the Forex world.
For example, if you decide to trade in the US dollar against the Japanese yen and expect the dollar to rise against the yen, then you will decide to buy. On the contrary, if you think the dollar will fall against the yen, then you will sell. If your expectation is correct, you will get profits by the price difference.
Let’s make a numerical example:
If the USD is trading at 108.25 / 108.35 against the Yen, and you have expectations that the Dollar will rise against the Yen, you have bought 100 of this pair’s decade CFDs at 108.25.
After a while, the pair rose 30 pips, and the new price is 108.55 / 108.65. You decided to close your deal by selling the 100 key CFDs at 108.65.
You bought with 108.25 and sold at 108.65. The difference here is 30 points. Because you bought 100 basic CFDs in this pair, your earnings are 30x100 = $30,000.
The base contract value here is $10,000.
Advantages of USD/JPY trading through CFDs
- Financial Leverage: You can increase the value of your money traded by using the leverage in the CFD trading, where you can deposit a certain amount, and doubled by leverage and investment value after raising the amount.
Note that earnings are calculated on the full amount after the leverage which means that you will receive multiple earnings based on the leverage you use.
Example: You can invest $30000 by depositing $1000 just by using a 1:30 leverage.
- Risk Management: With CFD trading, you can maintain your portfolio and further hedge negative price movements.
Example: If you are trading in the USD/JPY pair and you have already bought some pairs but at a high price, you can also make a profit by selling them even if prices fall. CFDs not only guarantee you profits at high prices but They also retreated.
- Different Options: During CFD trading, you will have different options based on your expectation of future performance.
Example: By trading the USD/JPY via CFDs, you can choose the option to sell if you expect the dollar to fall against the yen. If these expectations are correct, you can close the trade and the spread of the buy and sell price will be a profit. CFDs are an agreement to exchange the price difference between the beginning and end of the contract.
How does USD/JPY trade with Q8 Trade?
- Select the financial instrument:
Choose the USD/JPY trade. Q8 Trade has more than 300 financial instruments you can trade in, including Forex, Commodities, Currencies, Indices, and Stocks.
- Decide the type of your deal:
(Buy / Sell) Simply, if you expect the US Dollar to rise against the Japanese currency, select the Buy. Conversely, if you expect the price to drop, then select Sell.
- Select the volume
Enter the number of units you want to trade from the USD pair against the Japanese Yen.
- Manage the risks:
You can take advantage of a wide range of risk management tools offered by Q8 Trade including stop loss and profit taking orders, regardless of market volatility.
- Watch your deal:
Be aware of what is happening in your deal. You can intervene at any time by stop-loss or profit-taking orders.
- Close the deal:
If the transaction is not automatically closed, you can close it manually when you see that you have achieved what you want.
Why should you trade the USD/JPY pair with Q8 Trade?
- There is no exchange charge on the USD/JPY pair since you do not actually buy the asset and do not own it.
- Leverage that allows you to increase the amount of the deposit amount and increase your investments in the USD/JPY pair trading.
- Q8 Trade offers real-time prices which helps you make correct decisions when trading in this pair.
- There are live and historical charts showing the performance of the USD/JPY pair.
- You can sell the dollar against the yen without buying it!