02 Jan TRADING EDUCATION: USD JPY
The USDJPY is known colloquially within forex trading as the ‘gofer’ and is one of the most traded currencies in the world. Research suggests the USDJPY could account for 17% of total daily volume within the forex markets. Making the USDJPY the third highest traded currency pair in the forex trading arena.
Due to the relative time zones of Japan and the United states the USDJPY is a truly 24-hour currency making it perfect for those who are working but want to learn-to-trade in their spare time. Average broker spreads on the USDJPY usually represent good value, with most brokers offering spreads between two and four pips, with the pairs average daily range for 2015-16 being between 80-90 pips.
In terms of forex patterns the USDJPY reacts heavily to economic events and news, having a greater tendency to sustain a trend created by economic data than most other pairs. With both the USD and JPY being reserve currencies as well as having significantly sized manufacturing bases, Manufacturing and Industrial data can affect this pair quite heavily.
It can also be noted that because Japan has very small Crude Oil reserves of its own and as such the USDJPY can experience significant price volatility in relation to the price of WTI and Brent Crude Oil.
CURRENCY PAIR CORRELATIONS: USD JPY
Primary Trading Times For The USD JPY
Major Economic News Events affecting the USD JPY
Central Bank Data
There is a meaningful inter relationship between the USD and the JPY that centers around both nations having significant manufacturing bases. However, the long term weakness we have seen within the Japanese economy over the last fifteen years remains a core issue within the USDJPY.
Because of Japans aging population and stubbornly low inflation rates japan has traditionally had a very low interest rate. If Bank of Japans Interest Rate Decision is hawkish about the inflationary outlook of the economy and increases its interest rate traditionally has a bullish outcome for the JPY.
The federal reserve publishes its interest rate at 19:00 GMT whilst the bank of japan traditionally publishes its interest rate at 04:00 GMT with a press conference held at 06:00 GMT. This means that changes to monetary policy by ether central bank tend to happen while the USD JPY is at its quietest. Because of this we can often see significant directional moves within the USD JPY that can last several hours. With average moves as a consequence of the central banks decisions sitting between 100-175 pips.
Japanese Employment and Unemployment data does not have the same level of impact on the JPY as it does within most of the other major reserve currency’s. When it comes to employment data the USD JPY is largely governed by data from the united states in the form of Non-Farm Payrolls (NFP) figures on the first Friday of the month and Initial Jobless Claims which are published every Thursday.
Both figures have a high level of market impact and are watched closely by forex traders, but it is Non-Farm Payrolls data that can cause the most significant moves within the USD JPY. With average figures suggesting NFP data can move the USD JPY by between 100 and 150 pips.
Consumer Spending & Inflation
CPI & Core CPI data is by far the most influential of the major economic releases within the USD/JPY. Because japan has seen near zero inflation rates over the last 15 years and the bank of japan and Japanese government have both taken significant steps to interview within the Japanese economy, forex traders watch japans inflation rate very closely.
Weakness within the Japanese inflation rate can cause significant negativity within the JPY as it signals possible intervention by the BOJ. Whilst, strength within CPI inflation can create strong positivity within the JPY.
When it comes to U.S. CPI and Core CPI During the USD’s bearish periods forex traders concentrate on the Core CPI inflation data as this removes temporary factors that may be artificially holding back the US economy. But, when the USD is experiencing a bullish market the standard CPI inflation measure tends to have the most impact.
Once again we see USDJPY data being published when the pair is at its quietest and as a result when CPI Inflation and Core CPI Inflation data is published by ether the USA or japan it can move the market by an average of 75 – 115 pips.