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USDJPY Trading Guide - How to trade USD/JPY

Date Modified: 11/03/2024

In the foreign exchange market, the USD/JPY is the ticker symbol for the currency pair representing the US dollar (USD) versus the Japanese yen (JPY).

The USDJPY currency pair is notable for its significant trading volume and liquidity on the global stage. It belongs to the major group in the forex market, ranking behind the EURUSD as the second most liquid currency pair. It is commonly referred to as ‘the Ninja’, a nickname inspired by the celebrated hero of Japanese culture.

an illustration of the USDJPY forex pair.

Main Points:

  • The USD/JPY, also known as 'the Ninja,’ is the second most liquid currency pair in the forex market, offering tight spreads and frequent trading opportunities.
  • Trading USD/JPY using Contracts for Differences (CFDs) offers more flexibility and easy access to forex traders, unlike other options like currency futures, however, it also carries risks.
  • Understanding the primary factors affecting the USD/JPY price movements, like interest rates and central bank policies is crucial for informed trading decisions.
  • Historically, USDJPY has shown a strong correlation with Gold and US interest rates.
  • Forex strategies like trend trading, breakouts, support/resistance, etc, can be applied to trading USD/JPY, requiring thorough analysis and risk management.

What Is USD/JPY Trading?

USD/JPY trading involves speculating on the future value of the exchange rate between the US Dollar and the Yen, two of the world's most traded currencies. The exchange rate between both currencies is established by the USD as the base currency and JPY as the quote currency.

Essentially, the value of the USDJPY exchange rate indicates the amount of JPY required to purchase one USD. For instance, if the USD/JPY pair is quoted at an exchange rate of 99, this means that 99 JPY is needed to buy a single USD.

Indeed, the exchange rates of currency pairs fluctuate continuously and traders actively speculate on their future price movements to make a profit or loss. By performing technical and fundamental analysis on USDJPY price movement, traders make informed decisions on whether to buy or sell the currency pair.

Why Is the USDJPY an Important Forex Pair?

USDJPY is considered an important pair among day traders, swing traders, and long-term position traders for various reasons including the following:

  1. Liquidity: As one of the most actively traded currency pairs globally, the USD/JPY is recognized for its liquidity and trading volume.
  2. Cost Efficiency: The pair's high liquidity can also result in lower spreads. This may position USD/JPY as a cost-effective option for some forex traders.
  3. Volatility: The propensity for rapid fluctuations in the price movement of USD/JPY offers traders the avenue to find frequent trading opportunities.
  4. Economic Indicator: The USD/JPY pair, links the US Dollar with the Japanese Yen, and thus serves as an indicator of economic activities between the United States and Japan, two of the world's largest economies.
  5. Global Indicator: As the most traded Asian currency, paired with the US dollar, USD/JPY acts as a bridge between the Eastern and Western markets, providing insights into global economic trends.
  6. Hedging Tool: Fluctuations in USD/JPY impact global trade (imports and exports). This makes it a valuable tool for businesses and manufacturers to hedge against currency risks.
  7. Flight to safety currency: During risk-off market environments such as periods of geopolitical tensions or trade disputes, investors often flock to the Yen (JPY) as a safe haven.

However, trading USDJPY comes with the potential risk of losing money therefore traders need to be cognizant of the market factors that can lead to the rise and fall of the currency pair.

What Are the Economic Factors Affecting the USD/JPY?

Fundamental analysis of the US and Japanese economy plays a crucial role in predicting the future price movement of the USDJPY currency pair. This involves analysing economic factors like

  • Central Bank Policies: Monetary policies and interest rate decisions by the US Federal Reserve (Fed) and the Bank of Japan (BOJ) can significantly impact the USD/JPY rates. Notable reports, like FOMC meetings and the BOJ's interest rate statements, play crucial roles in shaping the price movement of the USDJPY currency pair.
  • Interest Rate Differential: The difference in the interest rates set by central banks like the Fed and BOJ is a primary factor that influences the trajectory of the USDJPY currency pair. A higher interest rate in the US compared to Japan may translate to a stronger USD against the JPY and consequently, a bullish USDJPY. Conversely, a lower interest rate in the US compared to Japan may translate to a weaker USD against the JPY and consequently, a bearish USDJPY price movement.
  • Economic Reports and Indicators: Strong economic data like inflation, GDP, unemployment, trade, and export balance from either country can strengthen or weaken a particular currency against the other. A notable report from the US is the Nonfarm Payroll (NFP) numbers released by the Bureau of Labor Statistics. In Japan, important data releases from Japan’s Statistics Bureau, the Japan Tankan Report, and the Tokyo Area CPI can also impact the USDJPY rate.
  • Market Interventions: The BOJ is well known for its numerous market interventions, which aim to control the yen's value against other currencies, including the USD. Such interventions can impact the trajectory of the pair.
  • Political Events: Geopolitical events and uncertainties like elections in either the US or Japan can impact their respective currencies and consequently the USDJPY exchange rate.
  • Natural Disasters: Japan's susceptibility to natural disasters, such as earthquakes, can have adverse effects on the yen's value which may strengthen the US Dollar against the Yen.

How to Trade USD/JPY?

When considering a financial instrument that can be used to speculate on the price movement of the USD/JPY currency pair without physically owning it, Contract for Differences (CFDs) stand out for their flexibility and accessibility. Unlike currency futures, which may require a large amount of capital input, are subject to liquidity concerns, and have an expiration date. CFDs offer a streamlined approach that caters to a variety of traders. Trading CFDs on USDJPY involves opening a buy or sell position to make a profit or loss from the difference between your entry and exit price.

Features of Trading USDJPY CFDs

The main features of trading CFDs on USDJPY include:

  • Leverage: With less money, you can control bigger trades, increasing both possible profits and losses.
  • Flexibility: CFDs suit many trading methods, allowing you to trade whenever you want, day or night.
  • Trading Tools: Plus500 CFD trading platforms provide tools for technical analysis and risk management to improve trading.
  • Cost-Effectiveness: You could potentially reduce trading expenses with spreads being the main cost of trading.

Steps to Buy and Sell USDJPY CFDs With Plus500

To begin trading contracts for differences on the USD/JPY, you can take the following steps:

  1. Sign up for a CFD trading Account.
  2. Access the Plus500 interactive trading platform.
  3. Select USDJPY CFD from the instrument category section.
  4. Analyze the USDJPY CFD price to decide if you want to go long (buy) or short (sell).
  5. Adjust your number of contracts.
  6. Set your risk management parameters.
  7. Click the "Buy" or "Sell" button.

Why Trade USDJPY CFDs with Plus500

  • Risk-Free Demo Account: Plus500 provides a free and unlimited Demo account to practice USDJPY trading without risking real capital.
  • Cutting Edge Trading Platform: The Plus500 intuitive trading platform ensures you can trade USDJPY CFDs comfortably on desktop, iOS, and Android devices, anywhere and anytime.
  • Advanced Trading Tools: Access to Plus500 advanced charts, technical indicators, and economic calendars helps to make informed trading decisions on USDJPY price movement.
  • Competitively Priced: Plus500 offers tight spreads when trading the USDJPY CFDs. Other fees might also apply.
  • Leverage: Plus500 provides leverage to amplify your potential returns but this can also amplify losses.
  • Access of Funds: With Plus500, you can access your funds anytime and enjoy a secure withdrawal process.
  • Safety of Funds: Your funds are kept in segregated bank accounts, by regulatory requirements.

Common USDJPY Trading Strategies

USD/JPY is considered a favoured FX pair for price action analysis, technical analysis, and a variety of trading strategies. Below are some common USDJPY trading strategies.

USDJPY Trend Trading

USDJPY trend trading focuses on finding buy or sell trade opportunities that align with the direction of the prevailing trend. Traders often plot tools like trend lines or moving averages as overlays on price charts to help identify the directional bias of USDJPY whether it is trending up or down or is stuck in a consolidating range-bound movement. By trading in the direction of the market's prevailing trend, traders hope to increase their chances of making gains provided the trend continues.

USDJPY Breakout Strategy

This strategy involves trading breakouts from a well-defined consolidating price range. For instance, if the USD/JPY price movement breaks above the resistance level of a range with increased volume, it suggests a potential momentum higher. Therefore, traders may enter a long position in anticipation that the price will continue to rise. Similarly, a breakout below the support level of a range with increased volume suggests a potential momentum lower, prompting traders to enter short positions.

USDJPY Support and Resistance Trading Strategy

Support and resistance levels on the USDJPY chart are significant price points that tend to have the potential for inflection moves and price reversals. These levels can be seen by identifying big-figure psychology levels and market tops and bottoms or by using technical analysis tools like Fibonacci retracement levels. By identifying these price levels, traders may buy USDJPY when its price movement retraces to a support level and sell USDJPY when its price movement meets with resistance levels.

USDJPY News trading

The news trading strategy involves buying or selling the USDJPY currency pair based on important economic data releases as was discussed above. Positive news for the US Dollar and negative news for the Yen may push the pair’s price movement upwards, and vice versa. News trading requires robust risk management practices due to heightened market volatility at the time of news releases.

USDJPY Carry Trade Strategy

The US Dollar and the Japanese yen have been used historically for carry trades. This involves borrowing to buy another currency to profit from their interest rate differential. For instance, if the US dollar has a higher interest rate than the Yen, a trader might take a short position on USDJPY — that is, selling the US Dollar and buying the Japanese Yen. The goal is to earn from the difference in yields between the two countries' currencies.

USDJPY Trading Hours

You can trade USDJPY CFDs and monitor the live price changes on the Plus500 trading platform. Generally, USDJPY is available for trading on our trading platform from Sunday 22:00 CET to Friday 22:00 CET without a break. However, trading platforms’ hours are subject to each operator.

What Are Some USDJPY Trading Tips?

USDJPY Most Active Trading Hours

Due to its high trading volume and liquidity, USD/JPY stays quite active around the clock. However, it sees the most action starting at 7 PM Eastern Time (01:00 am CET), which marks the beginning of the Asian trading session.

This period of increased trading volume continues through the European trading session and goes on until the US market opens at 7 AM Eastern Time (01:00 pm CET). During this time (US market open), high-impact news from the US is often released, leading to more intraday fluctuations in USDJPY price movement. After 5 PM Central European Time, the intensity of trading volume begins to decline.

USDJPY Correlations

USD/JPY shares negative and positive correlations with some commodities and financial assets. Examples of such correlation include:

  • USDJPY and Gold correlation: The USD/JPY often moves in the opposite direction of gold prices. For example, during the Great Recession, gold prices went up sharply, while the USD/JPY went down.
  • USDJPY and U.S. Treasury yield correlation: Historically, the USD/JPY has had a close correlation to U.S. interest rates. USD/JPY tends to move in the same direction as US Treasury yields, making it sensitive to changes in interest rates. When interest rates rise, the USD/JPY tends to rise as well.

However, one should note that past performance does not guarantee future results.

Staying Up to Date With Economic News

It is important to stay informed about economic events that might influence the price movement of USDJPY via the Plus500 economic calendar. You can also utilize our trading alert feature to get automatic updates via email, SMS, or push notifications on relevant news that affects the USD/JPY pair.

Practice Proper Risk Management

Risk management involves employing risk measures like utilizing leverage wisely, placing stop-loss orders, and avoiding overtrading. These risk management practices, among many others, can help to manage the risk of trading in a volatile market like USD/JPY and also limit any potential losses.

History of USDJPY

USD/JPY currency pair goes back centuries, with both the US Dollar and the Japanese Yen having diverse origins. The US Dollar was created in 1792 by Congress, replacing various currencies used in North America. The Japanese Yen was also introduced by the Meiji Government in 1871, replacing the Spanish Silver Dollars. Both currencies, USD and JPY were equal in value until 1873, when the Yen's value fell to half that of the USD due to the devaluation of silver.

The Yen's value was then set equal to gold, keeping it at USD 0.50 for many years until Japan stopped using the Gold Standard in 1931.

After World War II, the Yen was pegged to the US Dollar, which lasted until 1971 when the US left the Gold Standard, leading to the end of its fixed rate era. The Yen began to float freely and remains one of the world's most traded currencies.

Conclusion

Trading USD/JPY CFDs offers a unique opportunity to engage with one of the most popular and liquid currency pairs in the forex market.

This guide has walked you through some essential elements of trading USD/JPY CFDs, highlighting the currency pair's significance, its correlation with U.S. interest rates, and the impact of economic indicators on its movements, etc.

As you embark on or continue your trading journey with USD/JPY, remember the importance of risk management and staying updated with global economic trends. This can help in making informed decisions to maximise the potential for profitable trades.

FAQs

What are the historical long-term trends of USD/JPY?

The USDJPY has shown long-term trends in the past, like the upward trend in the 1980s and early 1990s and the downward trend in the 1990s and 2000s.

Should traders consider the USD/JPY?

Traders may consider the USD/JPY because of its high liquidity and frequent trading opportunities but it requires good risk management due to volatility, and event-driven price swings.

Which commodities have the biggest impact on the USD/JPY?

Primarily, oil influences the USD/JPY pair because both the US and Japan rely on oil imports. Changes in oil prices can affect their economies and currencies. Additionally, gold prices also play a role, although to a lesser extent.

One Japanese Yen equals how many US Dollars?

The exact exchange rate changes constantly, but as of today, February 15, 2024, roughly 150.4 Japanese Yen (JPY) are equal to 1 US Dollar (USD).


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