Trading the USD/JPY

This currency pair pits the United States Dollar against the Japanese Yen. It is a major currency pair to watch but can be more challenging than the other majors in the forex market. Japan has the third largest national economy in terms of GDP after the United States and China. The yen is the third major currency after the U.S. dollar and the Euro.

In this currency pair, the U.S. dollar is the base currency and the Japanese yen is the secondary or counter currency. As a result-

  • The USD/JPY is traded in amounts defined in U.S. dollars
  • The pip value, or minimum price fluctuation, is defined in Japanese yen
  • Profit and loss accumulate in Japanese yen
  • It is likely margin calculations are calculated in U.S. dollars

The major influence on the USD/JPY is the United States interest rates. This has such a great affect because the Japanese government and Japanese investors hold a large amount of U.S. debt. In fact, the Bank of Japan itself holds nearly $900 billion worth of U.S. debt.

The USD/JPY currency pair is also politically sensitive to trade. Japanese officials use the yen to manage the Japanese economy. Japan’s economy is heavily reliant on its exports. If the yen is too strong, Japanese exports become more expensive and therefore less attractive to buyers. If the yen is weaker, then Japan’s exports are more competitive in the global market.

The Japanese Ministry of Finance use the USD/JPY to regulate this delicate economic relationship. Because the Ministry of Finance frequently jumps into the forex market to dictate changes, it is essential to focus on the following data reports when investing in this currency pair.

  • Tankan Report
  • Bank of Japan policy decisions, monthly economic assessments, and Monetary Policy Committee member speeches
  • Trade balance and current account
  • Machine orders
  • Industrial productions
  • All-Industry Indes and Tertiary Industry (service sector) Index
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