Trading USD/JPY

The major currency pair, USD/JPY, is widely traded around the world. Owing to its high liquidity and low spreads, the pair is an attractive proposition for both novices and more experienced traders. This review explores the history of the forex pair in addition to the risks and advantages. We also look at how you can start trading USD/JPY with investing tips, strategies, charts and signals.

USD Vs JPY Explained

The USD/JPY represents the exchange rate between the US Dollar and the Japanese Yen. The US Dollar is the base currency in the pair and the Yen, the quote currency. The figure quoted is how many Yen you need to buy a US Dollar. Generally speaking, when the Japanese economy is growing, the Yen rises against the Dollar. The reverse is also true.

The USD/JPY is a high volume, volatile pair. It is responsible for 17.7% of the daily forex turnover at a value of $900 billion. After the USD/EUR, it is the second most traded currency pair in the world.

Whilst the strength of the US Dollar’s position is more widely known, the Japanese Yen also commands a high market value. Since its introduction in 1871, the Yen has flourished. Today, it is Asia’s most liquid currency and the third most traded currency in the world, after the US Dollar and Euro. However, the pair’s relationship has seen significant fluctuations over its recent history, an understanding of which will help traders make more accurate forecasts for the future.

Pros Of Trading USD/JPY

There are several reasons why trading the USD/JPY is popular:

• Volatility – USD/JPY can be a volatile pair with movement fuelled by Asian market forces. High volatility presents an opportunity to generate large profits but it does so at a risk.
• Liquidity – The volume of trades conducted on the USD/JPY pair is vast, owing to the fact that it’s made up of two of the most widely traded currencies in the world. High volume increases its relative safety given that trading tops, signals and charts are widely accessible. Large sums can also be moved in and out of currencies whilst benefitting from narrow spreads.
• Costs – Consistent with other major FX pairs, the USD/JPY sees relatively low bid-ask spreads. With fewer costs transferred to the trader, greater profits can be achieved.
• Resource availability – There is a broad range of information on the currency pair for traders to draw from. Realtime charts, live daily average ranges, exchange rate history graphs and more can be used to help guide strategy and execution. There is also an active online trading community with popular blogs and forums. Discussions cover historical bar charts, monthly forecasts and economic calendars, to breaking market news, profit calculators, trading hours and prices.
• Predictability – The USD/JPY is closely linked to the commodities market in Japan meaning that conducting research and analysis can be relatively straightforward. Global imports and exports are a good indication of market sentiment. The relative predictability of movement means that the pair makes for a suitable option for both experienced traders and beginners.
• Trading vehicles – Given the interest in USD/JPY, there are many trading vehicles available to leverage. From E-mini USD/JPY to futures and options, ETFs and many more, it has never been easier for traders to speculate on the pice of the major FX pair. Whether it be Elliott Wave analysis or daily pivot points, for traders today there are many technical analysis tools at your fingertips.

Risks Of Trading USD/JPY

As with any forex instrument, there are risks to consider before trading USD/JPY:

• Competition – As technology, including trading algorithms, signals and forecasts become increasingly advanced, traders today need to do more than basic market analysis to generate profits. These algorithms generate accurate forecasts using online charts, forward rates and market data. Retaining a competitive edge is becoming increasingly challenging.
• Volatility – Whilst volatility has its benefits, it also carries risk. In volatile markets, winning positions and options can be lost quickly. As a result of the implied volatility, traders should always action tight risk management strategies to mitigate losses.
• Political intervention – The BoJ has been known to intervene in the forex market when movements threaten to undermine the outlook for Japanese economic growth. Traders should keep up to date with developments and expert analysis.
• Economic instability – Economic instability in Asia can have a big impact on the USD JPY. The Yen is particularly affected, more so than its neighbouring currencies, owing to its global accessibility.
• Leverage – Margin trading using high leverage can be an opportunity to capitalise on big returns. However, when trading volatile pairs such as the USD/JPY, it can be all too easy to see big losses.

Whilst trading USD/JPY does have its benefits, it does also carry risk. Traders should ensure they are familiar with any potential risks before investing capital.

Influences On Movement

There are a number of factors that influence the behaviour of USD/JPY:

• Speculation – Market sentiment can heavily influence the USD/JPY exchange rate. If the value of a currency is forecast to rise, investors demand more of the currency to generate profit. The increase in demand increases the value of the currency.
• Economic growth – Widely recognised as the most important marker, economic strength has a substantial influence on the movements of the USD/JPY. When the US economy weakens, the Yen typically rises against the Dollar. Levels of unemployment, inflation and industrial production are all key indicators of economic strength.
• Political intervention – The US and Japanese economies are monitored by The Federal Reserve (Fed) and the Bank of Japan (BoJ) respectively. The BoJ is of particular interest as over the years, they have introduced a number of policies to help bolster the Japanese economy. Traders should ensure that they keep abreast of current Japanese news.
• Natural disasters – Due to its geographical makeup, Japan is susceptible to powerful natural disasters which can have seismic implications on the position of the Yen. Historically, the US has a more stable climate and is less likely to suffer extreme weather disruption.
• Currency growth – The US Dollar grows at a much faster rate than the Yen. Despite periods of high growth, the trend continues downwards against the US Dollar.
• Currency correlation – A currency does not move independently of other currencies. A change in the USD/EUR will, in turn, affect the USD/JPY. This means that traders need to have an awareness of global forex trends and forecasts to remain competitive. An understanding of the correlation between currencies can prove beneficial.

Calculating Correlation

Currency correlations range between -1 and +1, with -1 being a negative correlation and +1, a positive correlation. Pairs that have a positive correlation move in the same direction whilst pairs that have a negative correlation move in opposite directions. This can be seen most clearly when plotted on a 5 or 10-year graph.

For example, the USD/JPY positively correlates to USD/CHF but negatively correlates to EUR/USD. All currencies pairs are linked in some way, including the GBP. The Yen vs the price of gold is also highly correlated. Despite gold not being a traditional currency, it is traded in a similar way. The higher USD/JPY moves, the further gold tends to fall.

By looking at interactive or streaming charts, current price and exchange rate history, traders can get a feel for why forex pairings behave in the way they do. Relationships between currencies can be utilised in an effective trading strategy.

Day Trading Strategy

Trading Hours

Timing is everything when trading currency. Even though forex markets are open 24/7, there are certain windows that offer the most favourable conditions. It is a matter of quality over quantity.

The USD/JPY sees consistent volume throughout the day. But, between the opening time of 12:00 and the closing time of 15:00 GMT, tends to be the best time to trade. Although Tokyo’s market does not open until later, both London and New York are in full swing. It is during this time that the market is most active, spreads are tightest and volume at an all-time high. It is recommended that traders focus their activity during this intraday window.

Preparation

Traders serious about being head and shoulders above others will emphasise the importance of preparation. Whether it is logging historical data on an exchange rate’s history in an excel spreadsheet, pouring over economic calendars or scouring blogs and forums, to fail to prepare is to prepare to fail.

Moving Average Cross & Bounce

USD/JPY is ideal for intraday trading. Spikes can often be seen within minutes of the market’s opening. To capitalise on rich price action movement, many traders opt for a simple moving average cross and bounce strategy. Its popularity in part, is that it is simple to set up and execute. Some opt for 15-minute charts, but most use a 4-hour candlestick chart. The indicators needed include MA(50/200) and BB(20).

Buy entry rules state that BB(MA20) must be above MA(50), the price needs to be above both whilst also testing BB(MA20) as support whilst above MA(50). Choose a bullish confirmation candle from support and enter a buy/long entry.

Sell entry rules state that BB(MA20) should be below MA(50) and the price has to cross below both whilst testing BB(MA20) for resistance whilst remaining below MA(50). Opt for a bearish confirmation candle from resistance and input a short/sell entry.

It is recommended that traders incorporate stop-losses when using this strategy.

USD Vs JPY News

The daily forex news, specifically economic reporting, is an important resource. Traders should ensure they remain up to date with daily news announcements. Whilst useful for all, it’s particularly important for traders that wish to avoid over-reliance on hourly, yearly, 20 or 30-year forecast charts.

Information regarding public sentiment, economic growth and the latest employment rates all inform a trading strategy. Some of the best outlets for daily updates include:

• CNBC
• Reuters
• DailyFX
• Yahoo Finance
• Google Finance
• Discussion forums

Given the BoJ’s tendency to influence the Yen, it is particularly important for traders to have an overview of daily forex outlooks. Announcements can explain movements in weekly and monthly charts and data in addition to the latest and historical forecasts.

Risk

When day trading on the USD/JPY, traders should aim for strong risk-reward ratios. A ratio of 1:4 is one suggestion and will help balance volatility with profit. For example, risking only 25 pips in return for 100 pip profit. Implementing the 1% rule is always good practice and this pair is no exception. By never trading more than 1% of your total portfolio on a single trade, you will help to curb losses and facilitate long-term investing success.

Whether your trading strategy focuses on key support and resistance levels or moving averages, tight risk management underpins every successful trading strategy.

USD Vs JPY Forecasts For 2025

Now, what does it all mean for the future of USD/JPY? For any broker or trader, short and long-term forecasts, outlook predictions and the latest daily news are valuable resources to guide investment decisions. Today, remaining abreast of forex news, rates and economic reports is more important than ever to gauge future movement and to spot opportunity.

Final Word On USD/JPY

In short, trading on the USD/JPY is a potentially lucrative investing option for UK traders. Low spreads paired with high volume and volatility means profit potential. However, traders should ensure they are informed about the associated risks. As always, it’s our recommendation that a careful approach to risk management should be incorporated into any trading strategy. Whether you’ve been trading on the USD/JPY for years or began trading this week, last week or yesterday even, the fundamentals remain equally important.

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