The Japanese yen is an excellent currency to trade because of it’s trending properties. In fact, a recent study by Citigroup showed USDJPY to be the most predictable of all forex pairs. It’s also one of the most heavily traded currencies in the world; not surprisingly, since Japan is one of the biggest economies.
Bank of Japan
The central bank behind the yen is the Bank of Japan, who acts with the mandate to encourage growth and minimise inflation. However, the Bank of Japan has become significantly more aggressive with their approach recently as they have tried to combat two decades of slow growth and deflation.The new period of loose monetary policy has been given the term Abenomics, based on new Prime Minister Shinzo Abe. It’s seen the Japanese yen lose over 20% in value over a short time and has been responsible for a resurgence in the Japanese stock market.
Economy
Japan’s economy has been sluggish for the past 20 years and growth has rarely ventured beyond 2%. It’s an advanced, service economy that also has its fair share of exporters, particularly automobile manufacturers, such as Toyota, and consumer electronics companies. The economy as a whole is particularly tied to its main trading partner, China, and to the United States.In truth the economy has never really recovered from its real estate and technology bubble in the 1990’s. Together, with an aging demographic profile and closed attitude to immigration, progress has not been particularly forthcoming.
Yen drivers
Trading the Japanese yen requires keeping up to date with central bank announcements and policy moves which is best done by studying the latest comments from central bank officials. It’s also wise to keep an eye on economic figures, particularly CPI numbers, since inflation is such a big issue for the Japanese economy. The Tankan survey is also an important report for yen traders.Because of the strength of recent monetary policy it’s also important to watch the trade balance and debt levels as these could have a major effect on Japanese competitiveness in the future. As well as this, the Bank of Japan has at times been involved in currency intervention, whereby it’s sold huge quantities of yen to reduce their value.
The other big thing that drives the yen is the carry trade, this is where traders borrow money in the yen, due to its lower interest rates and park it in a higher yielding currency, such as the Australian dollar. However, in the face of loose monetary policy the benefit of doing so may be rapidly disappearing.
Editors’ Picks
AUD/USD rises to two-day high ahead of Aussie CPI
The Aussie Dollar recorded back-to-back positive days against the US Dollar and climbed more than 0.59% on Tuesday, as the US April S&P PMIs were weaker than expected. That spurred speculations that the Federal Reserve could put rate cuts back on the table. The AUD/USD trades at 0.6488 as Wednesday’s Asian session begins.
EUR/USD holds above 1.0700 on weaker US Dollar, upbeat Eurozone PMI
EUR/USD holds above the 1.0700 psychological barrier during the early Asian session on Wednesday. The weaker-than-expected US PMI data for April drags the Greenback lower and creates a tailwind for the pair.
Gold price cautious despite weaker US Dollar and falling US yields
Gold retreats modestly after failing to sustain gains despite fall in US Treasury yields, weaker US Dollar. XAU/USD struggles to capitalize following release of weaker-than-expected S&P Global PMIs, fueling speculation about potential Fed rate cuts.
Ethereum ETF issuers not giving up fight, expert says as Grayscale files S3 prospectus
Ethereum exchange-traded funds theme gained steam after the landmark approval of multiple BTC ETFs in January. However, the campaign for approval of this investment alternative continues, with evidence of ongoing back and forth between prospective issuers and the US SEC.
Australia CPI Preview: Inflation set to remain above target as hopes of early interest-rate cuts fade
An Australian inflation update takes the spotlight this week ahead of critical United States macroeconomic data. The Australian Bureau of Statistics will release two different inflation gauges on Wednesday.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.