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BULLISH PERCENTAGE INDEX
USD/JPY, the “gopher”
USD/JPY is the abbreviation for the U.S. dollar and Japanese yen cross. Trading this currency pair is also known as trading the "gopher". The USD/JPY tends to have a positive correlation with the USD/CHF and USD/CAD currency pairs because they all use the U.S. dollar as the base currency. Since much of the Eastern economy moves according to Japan, the Yen is quite sensitive to factors related to Asian stock exchanges. Because of the interest rate differential between this currency and other major currencies that preponderated for several years, it is also sensitive to any change affecting the so-called "Carry Trade".
Historical lows and highs… fixed rate or free float rate?
- Fixed Rate: from 1944 to 1971: Following World War II the Yen lost much of its prewar value. To stabilize the Japanese economy, the exchange rate of the yen was fixed at ¥360 per $1 as part of the Bretton Woods system that set an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to gold.
- Free Float Rate: When the Bretton Woods system ended in 1971, the United States unilaterally terminated convertibility of the US dollar to gold. The JPY became undervalued and was allowed to float. Since then, the pair reached its highest price in January 1973 at 301.15¥/USD and its minimum in October 2011 at 72¥/USD.
USD/JPY FORECAST 2019
In his "USDJPY Forecast 2019" published at the end of 2018, Yohay Elam states that USD/JPY will probably encapsulate the prospects for the whole world, with all the other central factors such as the Fed policy, stocks, and bonds all aligned. All in all, this currency pair is set to serve as a global barometer.
2018 saw contradicting forces eventually balancing each other and returning Dollar/Yen close to its starting line for the year.
The robust US economy, Fed hawkishness, the detente around North Korea and rising bond yields supported the pair. Fears about international trade, a global downturn, Brexit, and hiccups in stock markets kept the pair depressed.
MOST INFLUENTIAL ORGANIZATIONS FOR USD/JPY
The organizations that most impact the USD/JPY are the Federal Reserve of the United States and the Bank of Japan (BoJ). The interest rate differential between the Fed and the BoJ will affect the value of these currencies when compared to each other. For example, when the Fed intervenes in open market activities to make the USD stronger, the value of the USD/JPY cross could increase, due to a strengthening of the U.S. dollar when compared to the Japanese yen.
In Japan, deflation has been a persistent threat for many years, and the BOJ has pursued a policy of very low rates in the hopes of stimulating demand and economic growth; at various points in the 2000s, real rates in Japan were actually slightly negative.
The US Government is as well an institution of great importance for this pair: events as administration statements, new laws and regulations or fiscal policy can increase or decrease the value of the US Dollar and the currencies traded against it. The same happens of course for the Japanese Government, in particular, all the speeches of the Primer Minister and its so-called “Abenomics” economic policies which are based upon "three arrows" of fiscal stimulus, monetary easing and structural reforms.
MOST INFLUENTIAL CURRENCIES FOR USD/JPY
The USD/JPY pair can also be impacted by other currencies, in particular the Euro (for being a prominent commercial partner) and the Chinese Yuan Renminbi (for being the other main Asian currency).This group also includes the following currency pairs: EUR/USD,GBP/USD, AUD/USD, USD/CHF, NZD/USD, USD/CAD, GBP/JPY and EUR/JPY