Like all currency pairs, there are certain peculiarities of Japan and their currency that make the JPY perform differently, and this can have an impact on how the market behaves. Consequently here are a few things from a fundamental perspective that could help you in trading yen pairs.
The Japanese yen is broadly seen as a safe-haven currency. What this means is that during times of market uncertainty, people will move their assets into yen-denomination to protect from potential risks – leading to increased yen strength (or a drop in yen pairs) when risk sentiment in the broader international markets is depressed.
Also, the Bank of Japan has maintained an accommodative fiscal policy stance for decades now, despite recession and recovery cycles. What this means is Japan enjoys a relatively low-interest rate, making the currency particular attractive for carry traders. As a consequence, the yen is also subject to more currency flows than others, leading there to be more attention on counterpart interest rates – ie, changes in interest rate policy in emerging markets can have an impact on the yen, as carry traders adjust positions.
Both of these factors lead the yen to be something of a counterbalance in terms of the normal currencies movements that you’d expect due to fundamental global outlook. If there are concerns about the overall health of the global economy, the yen is likely to be bolstered at the expense of emerging markets – and a positive outlook for global growth can lead the yen to be weakened.
There are seven major events that happen each month than can move JPY significantly. In chronological order:
– Tankan Manufacturers Index: an indicator of the performance of the Japanese economy
– Consumer Confidence: can impact the yen from a domestic perspective, and is usually considered in the context of how it will impact monetary policy
– Trade balance: Japan’s economy depends in large part on exports, and drops in exports can lead to concerns about the overall health of the economy
– Bank of Japan interest rate decision (and release of the minutes one week later): focusing not so much on the interest rate but on asset purchases by the BoJ
– Unemployment rate: Unlike the US, the central bank of Japan does not have a mandate to lower employment; however the date is predictive of inflation trends and overall strength of the economy
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