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“Dollar yen” is known as a pair that is easy for beginners to start with because of its low spread and easy technical indicators. It is a currency pair of the Japanese yen, which has the world’s top-class economic scale like the US dollar, which is the world’s common currency, and is known for its high liquidity. As of 2019, it accounted for 13.2% of the total forex market on a daily basis, making it the second most traded currency pair on the market.
In this article, we will explain the exchange rate, price fluctuation factors, and information gathering that you should remember in order to trade USD/JPY in FX trading. Learn about the knowledge you need to know when investing in USD/JPY and the factors that determine when to invest.
table of contents- The dollar yen has a big impact on trade and overseas travel
- What is the dollar-yen exchange rate | Explanation of overview and fluctuation factors
- Benefits of starting FX investment with dollar yen
- Major Price Fluctuation Factors of USD/JPY
- Three Ways to Collect Dollar Yen Information
- Forex trading starting with “dollar yen”
1. The dollar/yen has a big impact on trade and overseas travel
First, let’s introduce the basics of the dollar yen.
1-1. What is the dollar-yen exchange rate between the US dollar and the yen?
First of all, “dollar yen” means the exchange rate of two currencies, the US dollar and the Japanese yen.
However, “dollar-yen” and “yen-dollar” do not mean the same thing, and there is a difference in terms of which currency the conversion rate is based on.
Assuming that 1 dollar is 130 yen, the dollar-yen is calculated based on the dollar, so we think that “1 dollar can be exchanged for 130 yen”, but the yen-dollar is based on the yen, so “1 yen is about 0.007 yen.” can be exchanged for
Although it is not stipulated by the treaty, it is common to trade and calculate in USD/JPY in the FX world. If you want to start FX trading, we recommend that you watch economic news in dollar yen.
1-2. Impact of dollar-yen exchange rate fluctuations
Next, let’s summarize the advantages and disadvantages of dollar-yen exchange rate fluctuations in a table. “Weak yen/strong dollar” means that the value of the Japanese yen is low relative to the dollar, and “strong yen/weak dollar” means that the value of the yen is high relative to the dollar. increase.
| Increased sales of companies engaged in export business, positive impact on business performance. Increase in inbound demand. |
Prices of goods and services imported into Japan from overseas will rise, and overseas travel will become more expensive. Rising energy prices. |
| Prices of overseas products and services will drop, overseas travel will become cheaper, etc. Lower energy prices. |
Decrease in sales at the yen rate of companies operating export business. Decrease in inbound demand. |
Japan has a thriving manufacturing industry for automobiles and electronic products, and much of the domestic industry depends on exports. In addition, as energy resources such as crude oil and natural gas can hardly be produced, and food production is not sufficient, the country relies on imports for most of the resources and commodities necessary for the economy.
As the domestic economy is thus tied to foreign currencies, especially the US dollar, the appreciation and depreciation of the yen are factors that have a major impact on the domestic economy.
1-3. Background to the “strong yen and low stock prices” in 2009
As of 2022-2023, the yen is depreciating, but there have been cases in the past that have led to a significant appreciation of the yen. For example, when the Democratic Party of Japan took office in 2009, the rapid appreciation of the yen and depreciation of stock prices progressed.
With the birth of the Democratic Party of Japan government at that time, expectations for “changes in Japan” led by the new government increased, and not only the US dollar but also many major currencies such as the euro, the British pound, and the Australian dollar began to buy the yen. I’m here.
At that time, the stock market recorded a decline due to the sudden appreciation of the yen. One of the factors is the continued appreciation of the yen, which led to a series of sales of export-related stocks such as automobiles and electrical appliances.
Below is the chart of the dollar yen at that time. From around 2008 to around 2012, we can see that the yen appreciated sharply.
2. What is the dollar-yen exchange rate | Explanation of overview and fluctuation factors
Next, let’s explain the basics to understand when trading USD/JPY, exchange fluctuations and their fluctuation factors.
2-1. What is exchange rate fluctuation?
The values of modern currencies, such as gold, which do not have a common value base, are relative and fluctuate mainly according to supply and demand. For example, if the demand for exchanging foreign currency to yen is higher than the demand for exchanging yen to foreign currency, the yen will appreciate.
2-2. Fluctuation Factors of Exchange Rates
Exchange rate fluctuation factors are divided into medium- to long-term factors and short-term factors. Let’s break down each of these variables by period.
Medium- to long-term factors include policy interest rates and the trade balance. The value of the currency of the country where the policy interest rate has risen tends to rise, and the currency of the country where the policy rate has fallen tends to decline, because the demand for selling low interest rate currency and buying high interest rate currency increases.
Also, when a country’s trade balance becomes surplus, the currency tends to appreciate. Since the US dollar is often used for payment for imports and exports, when Japan receives products imported from the US, the importer sells Japanese yen to buy US dollars, and pays in US dollars, so there is a demand for US dollars. increase. Due to this structure, an increase in exports and an increase in the trade balance will lead to a currency appreciation.
Next, let’s talk about short-term factors. Short-term factors include “central bank intervention in exchange rates” and “regional conflicts.”
Foreign exchange intervention is currency buying and selling conducted by the central bank of each country for the purpose of stabilizing the exchange rate by avoiding an excessive rise or fall in the value of the country’s currency. In addition, when regional conflicts occur, it is not uncommon for exchange rates to fluctuate greatly due to a sense of anxiety about the world situation.
3. Advantages of starting FX investment with USD/JPY
If you want to start FX trading, why not start with USD/JPY? Next, I will introduce the merits of starting FX investment with dollar yen.
3-1. Low spread makes it easy for beginners to start
Spread refers to the difference between the buying price and the selling price when buying and selling Japanese yen and dollars. Let’s explain the mechanism of the spread as if it were an actual transaction.
Let’s calculate the spread value assuming the following selling and buying prices when trading in dollar yen.
Selling price: 107.653
Buying price: 107.987
The spread in this case is 107.987 (buy price) – 107.653 (sell price) = 0.334
0.3 cents will be the spread on the transaction, which is borne by the trader.
Spreads differ depending on the currency pair and FX company, and currencies with high trading volume tend to have smaller spreads. The dollar-yen exchange, which is particularly popular, is attractive because it is easy to trade with relatively narrow spreads, as FX companies have focused on narrowing spreads.
3-2. High liquidity
As mentioned above, the dollar yen has a particularly large trading volume in the FX market, so it also has the advantage of high liquidity.
High liquidity in the Forex market means a large number of market participants, that is, whether it is easy to find a counterparty to buy or sell. In currency pairs with high liquidity such as the dollar yen, it is relatively easy to find trading partners and buy and sell at the desired price.
3-3. Easy to collect information
In addition, it can be said that the dollar yen is easier to collect information than other currency pairs. The United States has deep political, economic and cultural ties with Japan, and trends in the United States are frequently featured in the news. Therefore, even when collecting information in Japanese for transactions, the advantage is that it is easy to obtain information.
4. Major Price Fluctuation Factors of USD/JPY
When considering investing in USD/JPY, it is necessary to suppress general price fluctuation factors and understand USD/JPY-specific price fluctuation factors.
4-1. Economy
The first factor that causes the price of the dollar to fluctuate is the economy. For example, if the US economy is booming, investment demand for the future prospects of the economy will increase, and dollar buying will tend to proceed.
Here, “employment statistics” are widely used as an index for judging the US economy. The index of economic trends announced by the Cabinet Office is generally used as an index for judging the domestic momentum of Japan.
As for trends as of 2023, the US economy is expected to slow down and stagnate, with four major IT companies such as Apple GAFA proceeding with large-scale layoffs (temporary layoffs).
4-2. Policy interest rate
In order to predict the price movement of the dollar yen, it is necessary to check the trend of the policy interest rate.
As basic terms, raising interest rates to curb the overheating of the economy is called “tight monetary policy,” while lowering interest rates to revitalize the economy is called “money easing.” In both cases, the main objective is to stabilize the economy.
As for trends from 2022 onwards, Japan continued to ease monetary policy even as the world raised interest rates due to inflation. As a result, the Japanese yen was sold to buy the dollar and euro with high interest rates, which is said to have been a factor in the record depreciation of the yen. Beginning in March 2022, in response to the depreciation of the yen and the appreciation of the dollar approaching 150 yen to the dollar, on September 22 of the same year, the government and the Bank of Japan implemented the first yen-buying intervention in 24 years.
On April 9, 2023, Kazuo Ueda was inaugurated as the 32nd Governor of the Bank of Japan. In addition, at his first press conference after taking office on April 10, he announced his policy to continue large-scale monetary easing measures.
4-3. Situation around the world
In addition, the price of the dollar yen fluctuates according to the situation in each country in the world. Please note that the price of the dollar/yen is greatly influenced by trends in countries other than the United States and Japan due to the effects of high globalization.
For example, when the war between Russia and Ukraine began in February 2022, there was a movement to buy the dollar, which is said to be strong in emergencies, and the Japanese yen fell relative to the dollar.
5. Three Ways to Collect Dollar Yen Information
In order to achieve results in Forex trading, it is necessary to accurately collect information that is a factor in exchange rate fluctuations. So, finally, let’s explain three ways to collect dollar-yen information.
5-1. FX information site
First, let’s check the news sites and apps that transmit FX information. There are many such sites, so it is important to first find a source that provides reliable information quickly. You will also be able to grasp the flow of the world’s financial markets, economies, and exchange rates.
5-2. SNS such as Twitter
This is a method of collecting information from traders who are strong in Forex and SNS accounts operated by Forex information sites. Since many operators are transmitting in real time, it is attractive that you can quickly obtain the latest information that is highly topical.
If you can understand English without problems, we recommend collecting information in English. You can access information from all over the world, including the United States, without waiting for translation into Japanese.
6. Forex trading starting with “dollar yen”
The dollar-yen is known as a currency pair that can be traded even by Forex beginners because it is familiar to Japanese people and relatively easy to collect information. Other benefits include narrow spreads and high liquidity.
When starting FX trading, follow information from news sites and SNS, keeping in mind the fluctuation factors such as the policy interest rate and the central bank’s foreign exchange intervention explained in this article. As a first step, how about trading USD/JPY for the first time?
connection:Reasons why “SBI FX Trade” is recommended for cryptocurrency investors
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