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US Dollar vs Japanese Yen (USD/JPY)

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Axi Symbol: USDJPY

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3 Day Financing: Wednesday

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Pricing is indicative. Past performance is not a reliable indicator of future results. Client sentiment is provided for general information only, is historical in nature and is not intended to provide any form of trading or investment advice - it must not form the basis of your trading or investment decisions.

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What is USD/JPY?

The USD/JPY currency pair indicates the exchange rate between the United States dollar and the Japanese yen, or the quantity of Japanese yen (the quote currency) required to buy one United States dollar (the base currency). The pair, often known as the Ninja, is a prominent currency pair that benefits from huge daily volumes, strong liquidity, and narrow spreads since it includes the US dollar.

The US dollar is the most traded currency in the world, is owned by the majority of central banks and financial organisations, and is the official currency of numerous countries, including Ecuador and Puerto Rico. The dollar is the currency of choice for international transactions and reserves due to its stability and reliability. Furthermore, the dollar's dominance in international commerce has substantial ramifications for global exchange rates and economic policy, and it may serve as a benchmark for countries that want to fix or peg their currencies to the value of the dollar.

The Japanese Yen is the world's third most traded currency and is commonly seen as a safe-haven asset, making it an appealing method to de-risk portfolios during times of financial or economic turmoil.

With a 150-year history, the Japanese yen stands out for having exceptionally low-interest rates that promote economic growth. Because it is easy to borrow yen at low-interest rates to fund higher-yielding initiatives, the JPY has become the world's financing currency. The yen is an appealing currency for international investors due to Japan's current account surplus and reputation for economic stability.

Political problems with neighbouring Asian countries, on the other hand, may boost market volatility in the yen. The yen's exchange rate is influenced by Japan's vulnerability to natural catastrophes such as earthquakes and tsunamis, which may severely impair its economy. 

USD/JPY historical performance

The Japanese yen is known as a safe haven and tends to rise during times of economic and geopolitical uncertainty. The currency appreciated during the global financial crisis and USD/JPY did not reach a bottom until 2011, when market sentiment started to improve noticeably. The yen has been in a downtrend since then, as investors flocked back into risk assets. Post-COVID, interest rates started to rise again across the world - except for Japan - which led to the reemergence of the carry trade.

What affects the price of the USD/JPY pair?

Japan is one of the world's most industrialised nations and a major player in international commerce and finance. Its exports, particularly automobiles and electronics, add to the yen's importance and depend on crude oil imports. As a result, the yen's and USD/JPY's prices are highly associated with the price of crude oil. When the price of oil rises, the yen declines (inverse correlation) and the USD/JPY value rises (positive correlation).

Japan has a large current account surplus and is well-known for its economic stability. The yen is defined by ultra-low interest rates aimed at driving economic development. The JPY has become the world's financing currency since it is easy to borrow yen at low-interest rates to finance higher-yielding initiatives.

General market sentiment may also have an impact on the USD/JPY pair. Political tensions with neighbouring Asian nations could increase market volatility and lead to changes in the pair's value.

Another factor influencing the USDJPY pair's pricing is the announcement of key employment numbers for each area. Non-farm payrolls in the United States, for example, give insight on the health and stability of individual economies. Positive employment statistics may boost investor confidence and lead to an increase in currency demand, raising the value of the currency compared to its counterpart.

What to watch out for when trading USD/JPY?

Traders of USD/JPY should keep an eye out for economic data releases such as GDP growth, job statistics, inflation, and the US and Japan's trade balances. Keep an eye out for announcements from key influential organisations in both countries. These include: 

  • US Federal Reserve and Bank of Japan (BoJ) announcements for interest rates and shifts in monetary policy
  • US economic data (GDP, Inflation, Non-farm Payrolls, Manufacturing/services PMI, consumer sentiment)
  • Statistics Bureau of Japan (SBJ) for data on Trade Balance, Employment Change, Consumer Price Index (CPI), and Gross Domestic Product (GDP)
  • Geopolitical tensions, conflicts and wars
  • Natural disasters affecting Japan
The data is sourced from third-party providers. This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.

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