Monday, August 1, 2016

What Forex Traders Need To Know About The Yen (Guest Post)

For those of you interested in forex trading, you will have learned that the foreign exchange market is not just hugely competitive, but it is also rather complicated. Learning about the major currencies is vital if you ever want to succeed. When you consider the forex market, you can’t forget about the yen. It is one of the largest currencies in the world, so studying it is essential.

Learning About the Yen

If you want to learn to trade forex, then you will have heard how essential it is that you educate yourself on how forex trading works. Use online resources to gain a better understanding of the fundamentals, technical analysis, market trends, and everything else there is to know. After all, forex trading is not for the ignorant or unprepared. You need to know about the major currencies of the world, and that includes the Yen.

The Japanese yen (JPY) is one of seven major currencies that dominate the forex market, with these seven accounting for 80% of the market. Japan has one of the largest economies in the world, so it comes as no surprise that the yen is one of the biggest currencies regarding forex and international trade.

The central bank behind the yen is the Bank of Japan, and it has the directive to conduct in a manner that will minimize inflation and encourage economic growth. It is important to note that since deflation has been a big issue for Japan for several years now, the central bank has kept very low rates to encourage demand and stimulate growth.

These low rates drive global carry trades, which is where you borrow money in an environment with a low-interest rate, and then invest this in assets from other countries that offer higher yields. For this reason, any talk of an increase in rates can affect the rest of the forex market.

The Japanese Economy

The state of the economy plays a big part in how a currency is valued. In the case of Japan, it is important to note that despite being one of the largest economies, it has considerably lacked growth since the collapse of its real estate bubble. On several occasions, growth rates have been zero or negative between 2001 and 2011. For much of the last decade, it has also experienced deflation.

What Drives the Yen?

The general belief is that several factors influence the value of currency, including things such as price levels and relative interest rates. These models may not work that well in real markets, however, since supply and demand determine these rates and are in part affected by market psychology factors.

As a trader, you should pay attention to major economic data; this information is readily available from sources such as Bloomberg and the Wall Street Journal. Look out for the release of data such as trade balances, inflation, GDP, industrial production, and retail sales. These will all have an impact on the forex market.

Of course, other factors will have a significant impact on exchange rates. These include things such as interest rates, employment figures, and local and global news. Look out for scheduled meetings held by the Bank of Japan and keep your eye on the news. Things such as elections, natural disasters, and changes in government policies can all influence the value of the yen.

For Japan, in particular, you should look out for the Tankan survey, a quarterly reported economic review of Japanese business released by the central bank. This document is used to prepare monetary policy and will often move trading in Japanese stock and currency.

Staying Current

If you want to be a successful forex trader, then you need to stay up to date with your knowledge. Don’t expect to be able to thrive off the basics. You will need to continue to learn about what is happening with the major currencies and what we can expect in the future. Stay up to date with the news and be sure to read forex forecasts, such as USD/JPY forecasts.

This technical analysis will provide you with a review of major events that are expected to move the Japanese Yen and dollar/yen, but you can focus on the currency of your choice. While short-term traders are less likely to use economic-based models to predict currency rates, they are useful for shaping long-term trades.


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