You may have often chosen USD/JPY trading when trading forex.USD/JPY is one of the major currency pairs. Many traders trade this pair. Why USD/JPY is one of the selected pairs for traders? Because this pair’s spread is low. And the price volatility is quite tempting to get a profit. All forex brokers are available in this pair with spread sizes ranging from 1-3 pips depending on the respective brokers on this policy.
The daily average movement can reach 100 pips making this USD/JPY pair interesting to learn how its character and its correlation to other instruments. One interesting fact about the JPY is that this Japanese currency including a safe haven due to its stable price compared to the easily volatile USD.
Work from home with TenkoFX broker on forex, crypto and CFD
TenkoFX broker regulated by IFSC Belize
Open an account or try Demo account.
USD/JPY definition
USD/JPY is a currency pair in forex which represents the US dollar as the base currency and the Japanese Yen as the quote currency.
Unlike other pairs, the price in the chart for USD/PY consists of three round numbers and three or four decimal numbers depending on whether you use a 4 digit or 5 digits, broker. For example, at this time you see in the quote the price USDJPY is 104,390, meaning that 1 US dollar is worth 104,390 Japanese yen.
Regarding interest rates, the yen interest rate at the BOJ (Bank of Japan) is one of the lowest interest rates, even during the crisis, the interest rate at the BOJ almost touched 0% or around 0.3%.
With this low swap rate, the money is actually allocated for the real sector, so that it can make Japan one of the developed industrial countries and become one of the largest exporting countries in the world, especially to the US.
USD/JPY history
The currency of Japan is the yen. In kanji, it is written as 円. The government officially established this currency on 27 June 1871 based on the Shinka jōrei (government regulation on new currency).
Actually, the writing 円 reads en. However, it became a yen based on romaji or transcription during the Tokugawa Shogunate. The katakana character エ (e) is read as je. Another example of Ebizu (a district in Tokyo) is written as Yebizu.
In foreign currency trading (forex), the Japanese yen is one of the most widely used currencies in the world along with the American dollar, European Union euro, and British pound sterling.
In 1949 for the first time, the USD was pegged at JPY360.00. After that, the JPY continued to strengthen until it broke the 200 level in 1978.
After being able to pass the JPY 100 value for each US dollar in 1994, there was a rapid strengthening until USD/JPY reached a record level of 79.75 in April 1995. This condition is known as the “yendaka” or the yen’s rapid strengthening.
The ISO code Japanese yen
Although the ¥ symbol is well known internationally, economics, business, and banking across countries today prefer to use the ISO 4217 code system to define the currencies of countries in the world.
The ISO 4217 code was chosen to replace the money symbol or symbol because it is shorter, easier, and can solve the error if there is more than one currency sign that happens to be the same.
And the ISO 4217 code for the Japanese yen is JPY. The first two letters, JP, are short for Japanese. Whereas the last or third letter, Y, is the initial for Yen.
USD/JPY correlation
The USD/JPY pair is correlated with US Treasuries. The increase in Treasury bond yields is one reason the USDJPY will weaken.
The increase in Treasury yields will make the USD currency more attractive than the Japanese Yen, thus causing demand for USD to increase and demand Japanese Yen to decline. As a result, the Japanese Yen weakened. However, the weakening of the Japanese Yen can provide benefits to Japan, because it can increase the country’s exports due to cheaper goods prices.
The increase in Treasury yields causes a difference in interest rates between the 10-year US Treasury Notes compared to Japanese Government Bonds. With simple logic, the money will flow to higher-yielding investments.
When the yen weakens, it gives a positive note on increasing exports, because Japan is one of the countries that rely on income from exports. It was noted that there was an increase in exports from Honda Motor and Nissan Motor companies reaching 2.5% this year when the Japanese Yen weakened.
USD/JPY daily range
Calculation of the daily range of a pair is very important to estimate how much the ideal target will be achieved in a daily position. It will be very hard if you have a profit target of 100 pips while the daily range is only 80 pips.
USDJPY daily range has an average movement of 100-150 pips on 4 digits broker. If using 5 digits hence will around 1000-1500. What needs attention are the factors that influence USD/JPY price movements. these factors include important fundamental news that can trigger market changes in the short term.
To measure the daily range USD/PY you can use the daily range calculator indicator which will automatically calculate the daily average of a pair. Although you can measure it manually, the indicator tool will make it easier for you to calculate it.
Below appearance daily range indicator that will appear in a new window below the prices.
USD/JPY fundamental analysis
Even though USD/JPY is a pair with stable movements and there are the best trading hours, often price movements have high volatility even though it is not the best trading hours. Fundamental issues can affect change quickly so it is important to pay attention to fundamental issues.
Important fundamental news that has influenced USD/JPY trading are as follows:
- FOMC rate decision is the announcement of the interest rate of the United States. If the FOMC raises interest rates, it could trigger the USD to strengthen. However, if interest rates fall, it will trigger the US Dollar to weaken.
- Non-Farm Payrolls is news that releases the number of new workers outside the field of agricultural work. NFP releases monthly on the first Friday of every month.
- FOMC meeting minutes: report on the results of the FOMC members’ meeting that provides an overview of the upcoming Fed interest rate. The policy of increasing interest rates can cause the US dollar to strengthen.
- BoJ’s monetary policy statement is an announcement of the interest rate from the Bank of Japan. The release schedule is around 14 times a year and will have a direct impact on the JPY exchange rate. If the release result is better than the prediction, allows Japanese Yen will strengthen.
- Japan preliminary GDP q/q is data on the growth of the Japanese economy Gross Domestic Product (GDP). There are two versions of the data released each quarter, preliminary and final. Preliminary data releases are the earliest so they tend to have a big impact. If the release is bigger than the predictions, it will have a positive impact on JPY.
- Core machinery orders are data on machine and equipment purchase orders received by the private sector. Released every month which is an indicator of the level of production. The more purchase orders received will increase production activity. The release that is bigger than the prediction will have a positive impact on the Yen exchange rate.
Fundamental news above is news that is actively scheduled in the economic calendar. Besides, it is advisable to always absorb the latest news on the political and economic situation as well as the environment, because sometimes the impact of natural disasters also plays a role in causing increased volatility.
USD/JPY trading hours
The USDJPY pair is one of the trading instruments that many traders like to trade. Because the movements that tend to be stable for some traders are used for scalping trading.
The USD/JPY movement activity remains stable during open trading sessions, and there is enough volatility for traders to take advantage of. But most of the time, the best USD/JPY trading hours are not when the Tokyo market is open, it is when the market is closed.
The overlap between the London and New York markets is the reason. Because the core of all daily forex movements is here. Including when trading USD / JPY, the best time also appears during the overlap, not when the Tokyo session is on the floor.
But the London session and the Tokyo session also overlapped even if only briefly. This period is also used to get profit from the USD/JPY pair.
Best time trading USD/JPY trading
If possible open your chart for the best USD/JPY trading hours between 12.00 and 15.00 GMT. The London session and the American session are still open at this time. Even though the Tokyo market is still not operating, the three hours duration is enough to provide the best price movement for this pair.
For some conditions, volatility sometimes remains high for up to an hour, precisely at 16.00 GMT, providing a duration of four hours. In general, the USD/JPY trading pair at 12.00-15.00 can maximize efficiency in seeking profit.
This time period is able to provide opportunities to increase profits. Increased volatility provides more opportunities for trading. Indeed, sometimes there are other times that provide better movement of the week or month.
Volatility is matter
Volatility can be an indication that trade could end better, while the spread value should be kept low and liquidity high. You can read the forex market hours tool to get information on the session market time.
Volatility will change over time. For example, the average volatility per day at a given time is 129 pips. In general, it is very big. But there are times when the average volatility movement drops to 70 pips, which means that every hour there will be a decrease in pip movement. This time is better to stay away from trading, even if volatility is up or down overall.
Hours of high volatility are generally unchanged. To see how many pips have moved for a currency at any given time, use the average true range (ATR) indicator. For example, if the ATR is set to 15, the chart will show the average level of volatility in 15 days.
USD/JPY Avoided trading hours
The hourly volatility chart shows how many pips of USD/JPY are moving hourly during the day. The movement looks stable throughout the day, although there are several periods of decline in the level of volatility. Avoid trading when the volatility of these currencies is very low.
Do not open trades between 03.00 and 05.00 GMT. This time represents that Tokyo is preparing to close while London and New York have not started operations.
Another time to avoid is between 21.00 and 24.00 GMT when the New York session is closed and the London session is still on a break while the Tokyo market is not yet open.
Even though traders can make profits from such a small market, in the end, spreads and commissions can burn those profits. The difference in time is clear. Therefore, always check the volatility statistics to confirm when this currency is moving passively and actively. In essence, trading at that time will not adequately compensate for the capital and commissions issued.
USD/JPY historical chart
Although the Japanese Yen has been officially used since 1871, I have not found USDJPY historical data since that year, and only available since 1971 is the oldest data to find out the historical price of USDJPY.
In 1971 the Japanese Yen price against the USD was in the range of 357,7200 which then from year to year strengthened until finally in 2011 it was the lowest price of USDJPY at around 75,7200. And at the time of writing the USDJPY was at the level of 104,000.
Source macrotrends.net
If we pay attention to the curve formed on the USDJPY historical chart, we can conclude that the Japanese Yen since 1990 has tended to be stable in price. Perhaps it is for this reason that the Japanese Yen has become a safe haven currency.
Because Japan is an exporting country, a stronger currency will provide benefits that can boost the country’s exports.
USD/JPY hedging strategy
Hedging positions are trading without stop loss by utilizing the correlation between pairs, be it positive or negative correlation. In the USD/JPY pair, you can hedge positions by Long GBPUSD and USDJPY then Short GBP/JPY.
This method may be considered complicated but this is a hedging method that you can try to apply. In a demo account first, if you are not sure about this strategy.
With Long GBPUSD and USDJPY action, it means that you buy a currency using USD then sell USD using JPY. Meanwhile, sell GBPJPY means you sell pounds in exchange for JPY.
GBP/USD and USD/JPY have a negative correlation where if GBP/USD goes up, usually USD/JPY will go down. While GBP/JPY and GBPUSD tend to have a positive correlation.
This means that the movement is often one-way, thus a Long GBP/USD position, if it rises, will provide floating profit. While the USD/JPY trading position will experience a floating loss. The key is finally in GBP/JPY, if short positions experience floating loss, the calculation involves the GBP/USD and USD/JPY positions. This is not always safe, but you have to pay attention to the trend, especially on GBP/JPY which is the key to this hedging strategy.
USD/JPY gold correlation
The correlation between USDJPY and Gold, often shows a negative correlation, meaning that price movements are often opposite between gold and USDJPY. If gold goes up 100% the USDJPY can fall by around -90%, but this correlation often comes and goes.
Chart by Tradingview
From the historical price chart between XAU/USD which represents gold and USD/JPY trading above. If the gold price goes up, USDJPY will move down.
But why this condition can happen? There is no detailed explanation for this because we know that Japan is not a gold-producing country. So it is impossible for the exchange rate to depend on the price of gold.
But here we look at the USD factor, we know that the gold standard value uses the USD currency. So it can be said that it is correlated with the USD exchange rate. When USD strengthens against JPY, the chart will go up. While XAU/USD will go down, as a result of strengthening USD.
USD/JPY and USD/CHF correlation
The USD JPY and USD CHF correlation often show a positive correlation. It meaning that price movements tend to be one-way. If USDJPY is in a bearish trend, USDCHF is also a bearish trend.
However, the magnitude of the correlation is not up to 90%, often below that level. In this case, what needs to be considered is the JPY and CHF currencies. The strength of the two currencies can be related to the fundamental condition of each country. As a result, the correlation occurs sometimes with high gaps and sometimes small gaps.
USDJPY Chart by Tradingview
USDCHF chart by Tradingview.
Conclusion
USDJPY Trading is an attractive pair to trade, even with a stable moving average with low spreads. Making this pair a great potential profit. However, the BoJ’s role is very strong in JPY, if the currency is considered too strong. It also becomes less profitable, so that sometimes the BoJ intervenes in the currency to weaken it.
And this is what sometimes traders don’t realize because they do it immediately. While retail traders don’t have any source of information leakage.
Ready to start trading? Open an account or try a Demo account.
Read another article
Fundamental analysis for Dummies
EUR/USD Trading pair, The Most Suggested pair for Beginner
