NZD/JPY Trading Guide: How to Trade the NZDJPY FX Pair

The economies of New Zealand and Japan play uniquely different and significant roles in global trade and their currency pairing has unique characteristics due to the major influence of commodity prices on the New Zealand Dollar and the safe-haven status of the Japanese yen.

Hence, for anyone interested in trading NZDJPY, it is crucial to understand how to trade the currency pair, including the strategies involved and the factors that shape its price movements:

Main Points:

• The NZD/JPY is the abbreviation used to denote the value of the New Zealand dollar relative to the Japanese yen.
• The NZD/JPY is regarded as a cross or a minor pair in the forex market because it does not constitute the US dollar.
• By trading NZDJPY CFDs, traders can speculate on the price movements of the NZD/JPY exchange rate without ownership of the Kiwi or the Yen.
• Trading strategies used to trade the NZDJPY are trend trading, breakout trading, carry trade, etc.

Firstly, how did the New Zealand dollar and the Japanese yen come to exist? A brief origin of the Yen and Kiwi is given as follows:

The History of the NZDJPY (New Zealand dollar and Japanese Yen)

History of the New Zealand Dollar

The New Zealand dollar is a relative newcomer to the world currency market. Prior to its adoption in July 1967, the New Zealand pound served as the country's official currency since 1840. After years of deliberation, the New Zealand Parliament opted to transition to a decimal system. They passed the Decimal Currency Act in 1964 which paved the way for the official introduction of the New Zealand dollar.

History of the Japanese Yen

Historically, before the Japanese yen, Japan had a fragmented currency system where each feudal area issued monetary units with no standard denomination. To unify the country under a single currency, the Japanese yen was established by the Meiji regime in the 1800s. The Currency Reform Act of 1871 ushered in the Yen as the official currency of Japan and further centralised the currency issuance to the Bank of Japan.

Understanding the New Zealand Dollar/Japanese Yen Currency Pair

The Japanese yen is the currency of Japan, the fourth-largest economy in the world by gross domestic product (GDP) and the world's second-largest automobile manufacturing country (as of May 2024). Meanwhile, the New Zealand dollar serves as the currency of New Zealand, a smaller economy that thrives on commodity exports and is Japan's fourth-largest trade partner.

According to the Triennial Central Bank Survey in 2022, the Japanese yen ranked third among the most traded currencies in the world (by trading volume), while the New Zealand dollar ranked in the seventh position.

What Is the New Zealand dollar?

• The New Zealand dollar is the official currency used for everyday transactions in New Zealand and a few islands like the Cook and Pitcairn Islands.
• The currency is symbolised by “NZ$” or “$NZ” and abbreviated as ‘NZD’.
• The New Zealand dollar is nicknamed “Kiwi” because of the country’s native flightless bird depicted on its one-dollar coin.
• It is classified as a commodity currency due to New Zealand’s major role in commodity exports.

What Is the Japanese Yen?

• The Japanese yen is the official currency used for everyday transactions in Japan.
• The currency is symbolised by “¥”, and abbreviated as ‘JPY’.
• The Yen exhibits characteristics of a “safe haven” currency because of the country's non-inflationary economy and low interest rate.

Characteristics of the NZDJPY Currency Pair

• NZD and JPY are major currencies in the foreign exchange market and the Asian market.
• The currency pairing, ‘NZDJPY’ is classified as a cross or minor forex pair.
• NZDJPY is not as liquid as major pairs, but in terms of volatility, it is higher than major currency pairs.
• The NZDJPY currency pair has a volatility rating of 1.04% based on data available in May 2024.
• As of 2024, the NZDJPY currency pair ranked 15th among the most traded currency pairs in the world.
• It also accounts for 0.93% of total FX turnover in 2024.

What Is NZD/JPY Trading?

On various forex trading platforms, the ticker symbol used to represent the exchange rate of the New Zealand dollar (NZD) to the Japanese yen (JPY) is denoted as NZDJPY. In this exchange rate representation, NZD is the base currency and JPY is the quote currency. In other words, it tells you how much Yen (JPY) you need to exchange for one Kiwi dollar (NZD). For example, NZDJPY at a rate of 1.40 means that you will need 1.4 JPY to purchase 1 NZD.

Therefore, as both currency values fluctuate, the NZD/JPY exchange rate will change relative to the strengths and weaknesses of both currencies. This presents opportunities for traders to open a long position on NZD/JPY if they expect the Kiwi to appreciate against the Yen or a short position if they expect the Kiwi to depreciate relative to the Yen.

What Driving Factors Affect the NZD/JPY Exchange Rates?

When trading the New Zealand dollar (NZD) to the Japanese yen (JPY) currency pair, several factors can impact the NZDJPY exchange rate. These factors are provided as follows:

New Zealand Economy: The economic health of New Zealand is largely dependent on trade, mostly with China, US and Japan. Among New Zealand's key exports are metals and dairy products, especially milk, wool, and cattle. Therefore, an increase or decrease in commodity demand can influence the Kiwi's strength against the Yen.

Japan Economy: The economic health of Japan is largely dependent on its manufacturing and industrial exports. Given Japan’s manufacturing and industrial output economy, competition from South Korea and China, along with Japan's export performance can influence the strength of the Yen against the Kiwi.

Economic Data Report: Macroeconomic reports concerning New Zealand and Japan's economies can significantly affect the NZDJPY exchange rate. Major examples of such data releases are inflationary figures, gross domestic product (GDP), unemployment data, imports & exports, and travel & tourism data.

Central Bank Policies: Monetary policy decisions by the central bank of New Zealand and Japan play a significant role in the overall forex market. Their policies, such as raising or lowering interest rates and adopting dovish or hawkish stances, affect the relative value of the Yen and the Kiwi dollar, ultimately dictating the NZDJPY exchange rate.

Commodity Prices: The value of the New Zealand Dollar (NZD) is heavily influenced by the global commodity market. Rising commodity prices translate to higher export earnings for New Zealand, leading to a stronger Kiwi relative to the Yen. On the other hand, falling commodity prices can cause the NZD to weaken.

Global Risk Sentiment: Geopolitical tensions and investor risk appetite are significant factors influencing the NZDJPY exchange rate. Periods of heightened uncertainty, characterised by risk aversion and "risk-off" sentiment can trigger a flight to safe haven assets like the Japanese Yen, thus strengthening the Yen against the New Zealand Dollar.

What Institutions Influence the NZDJPY Exchange Rate?

The Reserve Bank of New Zealand (RBNZ)
The RBNZ is the Central Bank of New Zealand entrusted with stimulating economic growth and a healthy financial system. The RBNZ releases monetary policy decisions seven times a year and monetary policy statements four times a year.

The Bank of Japan (BoJ)
As Japan's central bank, the Bank of Japan (BoJ) is entrusted with achieving specific economic objectives such as price stability and economic growth. The BoJ achieves these objectives through its monetary policy stance, which involves setting interest rates and announcing monetary policy statements eight times a year.

Statistics New Zealand
Statistics New Zealand also known as Stats NZ, is the national statistic agency in New Zealand responsible for producing, analysing, and publishing a wide range of New Zealand economic statistical reports like employment indicators, retail trade surveys, labour market statistics, and agricultural production statistics.

Statistics Bureau of Japan
Functioning as the national custodian of economic data in Japan, the Statistics Bureau plays a vital role in analysing and publishing crucial economic reports. These reports include the Tankan survey, the corporate goods price index (CGPI), and the balance of payments (BOP) statistics.

How to Trade NZDJPY CFDs

Unlike traditional currency exchange, forex CFDs allow speculation on foreign exchange rates without needing to own the underlying currencies.

In the same way, you don't need to own either the New Zealand dollar or the Japanese yen to trade the NZDJPY exchange rate; rather, by trading Contracts for Differences (CFDs) in the NZDJPY exchange rate, traders can realise profit or loss from the price differential in the entry and exit points from either long or short positions.

What Are the Trading Hours for NZDJPY CFDs?

The foreign exchange market operates Monday to Friday except on weekends. Through the Plus500 App or WebTrader platform, traders can also track NZDJPY price movement in real time and trade the NZDJPY CFDs. NZDJPY trading is available continuously, starting Sunday at 10:00 PM CET to Friday at 10:00 PM CET.

*Please note that trading platform hours depend on the individual operator.

NZDJPY Trading Strategies

Strategies that can be used to trade a minor forex pair like NZDJPY include the following:

Trading NZDJPY Trends: Understanding the prevailing direction, or trend, in the NZDJPY market is key to generating potential profits. A variety of technical analysis tools, including moving averages, trend lines, and indicators, can be used to spot trends. Once a trend is identified (e.g., an upward trend in NZDJPY), traders can strategically position themselves by entering long positions to capture potential gains.

Trading NZDJPY Breakouts: Price movements can leave clues on charts, and specific price patterns like triangles, flags, wedges, and head-and-shoulders can be used to spot breakouts. These patterns emerge when NZDJPY price movement gets "confined" in well-defined support and resistance levels. If the price movement decisively breaks above resistance, traders might open long positions to potentially profit from the upward breakout. Conversely, traders might open short positions to potentially profit from the downward breakout.

NZDJPY Carry Trading: Traders can capitalise on the interest rate differential between NZD and JPY through carry trading. This strategy relies on the idea that a currency with a higher interest rate tends to appreciate against one with a lower interest rate. With New Zealand's interest rates typically being higher than Japan's, traders may receive positive overnight funding fee entering long positions on the NZDJPY.

Steps to Buy and Sell NZDJPY CFDs With Plus500

To trade NZDJPY CFDs, you can take the following steps:

1. Create a demo or real trading account.
2. Log in to the trading platform on desktop or mobile.
3. Explore the various trading tools on the platform.
4. Select NZDJPY CFD from the ‘Forex - Minor’ category in the instruments section.
5. Analyse the NZDJPY price movement and decide whether to buy (long position) or sell (short position).
6. Specifyy our contract size and risk management parameters.
7. Click "Place Order" to confirm your buy or sell trade.
8. Lastly, monitor, adjust or exit the trade.

Tools and Practises for Trading NZDJPY

Besides having a well-defined NZDJPY trading strategy. Here are some helpful guidelines that may improve your NZDJPY trading.

1. Monitor Commodity Market Trends: Keeping track of commodity prices, especially dairy products, livestock and agricultural products can provide insights into the future direction of the NZDJPY price movement.


2. Stay up to date with News: It is crucial to keep an eye on news and geopolitical events emerging from New Zealand and Japan. Plus500 economic calendar can be used as a valuable tool to monitor important data releases that can affect the NZDJPY market.


3. Conduct Technical Analysis: By utilising different chart types, technical tools and indicators, traders can analyse the price movement of NZDJPY and spot potential profitable opportunities.


4. Risk Management: A well-defined exit strategy is key to managing unexpected shifts in the forex market which has the potential to cause excessive loss. Therefore, it is important to use automated orders that automatically close your positions at profit or loss levels.

Conclusion

The NZDJPY currency pair, representing the currency conversion rate between the New Zealand dollar (NZD) and the Japanese yen (JPY), offers a glimpse into the economic performance of both nations. However, unlike major pairs like USDJPY, the NZDJPY falls under the category of minor currency pairs. For traders who want to capitalise on the NZDJPY's price movements, it is crucial to understand the key factors and institutions that influence its exchange rate. By combining this knowledge with a well-defined trading strategy, traders can potentially navigate the NZDJPY market effectively.

Frequently Asked Questions

Why Is NZDJPY More Volatile Than Major Currencies?

NZDJPY is more volatile when compared to major currency pairs like EURUSD or USDCHF because it does not constitute the US dollar. The US dollar being the most liquid and most traded currency in the world contributes to the price stability of its currency pairings.

What Currency Pairs Are Correlated with NZDJPY?

The NZDJPY pair is positively correlated with AUDJPY, CADJPY, CHFJPY, and EURJPY, and negatively correlated with GBPCAD, GBPAUD, and GBPCHF. Traders may use the insight from this correlation to diversify, and hedge against risks when trading.

Why Is NZDJPY Different from Other Forex Pairs?

The NZDJPY, when compared to other forex pairs, offers diversification to your portfolio by providing exposure to only the Asian markets.