USD/JPY trading - How to trade the Yen

Last updated: 14.09.2022
Paddy Osborn
Author:
Paddy Osborn
Adviser
CFD & Trading
Experience
24 years

When it comes to the forex market, there are a wide array of currency pairs that are traded online. One of the most popular being the USD/JPY pair. It’s important to choose a currency pair that works for you and aligns with your trading methodology and actual knowledge. 

If you are interested in finding out how to trade USD/JPY, then this guide is for you. We’ve tailored an overview that will outline all you need to know when it comes to this liquid currency pair. Keep reading to find out more about the characteristics of this pair and how you can trade USD/JPY online.

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  • What is the forex market?
  • Advantages of trading USD/JPY
  • How to trade USD/JPY
  • Best time to trade USD/JPY
  • Make use of the right forex broker
  • Trade USD/JPY right here

What is the forex market?

The forex (foreign exchange) is the biggest financial market in the world. Currencies are traded – either through buying and selling or speculating on the price movements – in high volumes on a daily basis. In the forex market, you’ll find that currencies are paired together. This means that you will trade one currency relative to another. One of the most liquid, and regularly traded, pairs is the USD/JPY. Thus, it’s a representation of the exchange rate for the US dollar to Japanese yen. A visual representation of the currency pair has it trading at a price of 108. This means that you require 108 yen to buy 1 US dollar. 

The USD/JPY currency pair forms part of the major currency pairs and is a close second in terms of average volume traded. What’s interesting is that the USD/JPY pair appeals to all types of traders – from those who implement a scalping strategy to those who find themselves engaged in swing trades.

Prices changes of USD/JPY

As you might know, there are a wide swathe of factors that affect the price movement of this currency pair. Before you consider trading any type of forex pair, it’s vital to gain a wider understanding of the factors that drive price changes. Being able to identify and understand these price changes will be of great help when trading forex online. As such, we’ve listed several important factors which tend to play a big role in determining the exchange rates of the US dollar and the Japanese yen. 

Interest rate differentials 

We’ll always be sure to point out the fact that interest rates are correlated with exchange rates. If a country increases interest rates, the currency of a country tends to appreciate. Higher interest rates attract more foreign capital and increase the demand for said currency. Thus, it’s pertinent to keep an eye out for the difference in interest rates set by the Federal Reserve and the Bank of Japan. 

Economic conditions 

As is the case with all foreign exchange, domestic economic conditions will affect the price of a currency. For the most part, traders can follow the latest economic data releases and reports so as to stay in touch with economic conditions in the US and Japan. Economic conditions, and the changes these conditions, can pave the way for long-term trends in the price of currency. 

Commodities 

It’s extremely important to take into consideration the effect that commodities will play on the currency pair USD/JPY. This comes down to the fact that Japan imports a large percentage of commodities, especially oil. They import just about all their oil while the US only imports half of their demand. When the price of oil surges upward, it can play a big role in devaluing the yen relative to the US dollar. Thus, it’s always recommended that you keep tabs on the energy sector when you trade USD/JPY. 

Monetary policy 

There are a range of other policy measures that will affect the exchange rate of the US dollar and the Japanese yen. This extends past interest rate changes and it’s important to keep an eye on news coming out of the central bank reports. Anything from current inflation measures to money flow is of big interest. These measures and changes in policy weigh heavily on the strength of a currency and can push the price of a currency up or down rather drastically.

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Advantages of trading USD/JPY

As we’ve alluded to in previous sections, one of the biggest advantages when you trade USD/JPY, is that you’ll find there is huge liquidity. The fact that there is high liquidity leads to a fair amount of volatility in the market. As the price is exacerbated throughout trading, you’ll find that there are a number of great trading opportunities. Due to the USD/JPY pair being correlated to a great degree to the commodities market in Japan, intuitive traders are in a good position to predict price movements.

Another great advantage is the fact that there are low bid-ask spreads. It’s apparent that these spreads can be significantly lower than spreads on other forex pairs. Lower spreads will encourage more trading activity and improve potential profits. 

It’s important to keep in mind that volatile pairings also have a downside. Although there is always a lot of trading opportunity to be had, it also means there’s a bigger chance to lose out heavily. The USD/JPY pair is not seen as a safe-haven and newcomers can be at risk of experiencing quick losses that are difficult to make up for.

How to trade USD/JPY

There are a number of trading strategies that you can adopt when trading USD/JPY. However, certain strategies work better than others. Thus, we’re going to walk you through an approach which is tailored to USD/JPY. In terms of understanding the approach, it’s good to know that this type of strategy is a price action strategy which is technically-inclined. 

Long trade 

If you are looking to engage in a long trade, we recommend you use a timeframe set at 15 minutes. It’s important to assess the previous days close and ensure that there is a clear consolidation phase. In this phase, there must be an upper and lower boundary which is defined beyond doubt. The idea is to wait for a breakout and ensure that you close above the resistance line of the range. At this stage, it’s necessary to enter a buy order and a stop-loss right at the center of the consolidation range. The eventual target will be twice the consolidation range ( meaning one pip above the upper resistance line). 

Short trade 

Once again, it’s a good idea to use a timeframe of 15 minutes when conducting a short trade setup for USD/JPY. Be sure to identify a drawn-out consolidation phase from the previous day’s trading. Upon finding a breakout, it’s recommended that you close below the lower support line. From here, you need to enter a sell order and stop-loss as outlined above. The target is measured downward in this case and should be twice the consolidation range. 

Keep in mind that you’ll need to make use of the relevant trading features when assessing historical trends and analysing current price movements. You’ll find that you can analyse a USd/JPY chart on an online trading platform. This type of charting tool is your number one assessment tool which will enable you to track trends and breakout points. Without it, you’ll find it extremely difficult to follow the price changes of the US dollar against the Japanese yen.

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Best time to trade USD/JPY

It’s important that you trade USD/JPY at the right time of day. There are particular trading sessions which may be rather lacklustre while certain times of the day will enjoy more trading activity than at other times of the day. Picking the best time to trade USD/JPY will provide you with igh trading activity and a string of buyers and sellers. You’ll also have access to more information which might play a role in whether you feel the price of the US dollar relative to the Japanese yen will appreciate or depreciate. The best time to do so is usually between 12:00 – 15:00 GMT. You’ll find that both the London and NEw York markets overlap (even if the Tokyo market isn’t open as of yet). 

It’s important to make the most of this window as you’ll find that there is better profit to be had while you can find extremely tight spreads and naturally, there’s high liquidity.

Make use of the right forex broker

When it comes to using an online broker to trade USD/JPY, it’s important that you find a broker that is right for you. No matter if you are starting out or have been going at it for years, the right broker makes all the difference. As such, we recommend that you make use of nextmarkets. We’ve gone to great lengths to establish a reliable and innovative trading platform that enables you to access a wide range of forex trading opportunities. You’ll also have the latest mobile trading app at your fingertips with seamless trading features and alerts. We’ve made a great fuss of including forex CFDs so that you can enter the forex market online and speculate on the price of USD/JPY. 

Not only do we maintain a top-class trading platform which is accessible across Europe and the UK, but we have also incorporated these guides. Guides which have been crafted so that you can improve your trading expertise and understanding. All of which will help you become a more intuitive online trader. Use our overview of the best forex broker to find out more.

Trade USD/JPY right here

You are now far more familiar with how to trade USD/JPY. The forex pair is certainly one of the most liquid pairs within the foreign exchange market. High volumes of USD/JPY trades take place, much like when traders trade EUR/USD. Adding this pair to your trading watchlist is a wise decision and will provide you with ample trading opportunities. Keep in mind that it is important to make use of an analysis approach that works for you. Bearing in mind the factors that affect the price of the US dollar relative to the Japanese yen, you’ll be able to execute trades with more precision and insight. 

If you are starting out as an online forex trader, then we suggest you head on over to our guide to forex trading for beginners. This will allow you to embark on an informative journey and ensure that you start trading forex with the correct knowledge and understanding of the exciting forex market. Be sure to put our tips into action as soon as possible!

Trade USD/JPY FAQ

👉Is USD/JPY a liquid currency pair?

When looking at different currency pairs, there are certain pairs that are more liquid than others. This means that you’ll find a range of currency pairs that have extremely high liquidity while others are less so. When it comes to trading the USD/JPY forex pair, you’ll find that it is frequently bought and sold. As such, you’ll find that there are many buyers and sellers in the market and you’ll have no issue engaging in USD/JPY trades.

🔆What is the best strategy to trade USD/JPY?

There are a number of strategies that you can make use of when trading forex in general. It’s important to make use of a strategy that works for you. In our forex guides, and more specifically our overview of how to trade USD/JPY. Thus, our experts have gone to great lengths to ensure that you have all the resources necessary to get started trading forex online. Make sure you find out what the best strategy is so that you can speculate in the price of USD/JPY with nextmarkets.

📈What factors affect the price of USD/JPY

There are a number of different factors that affect the price of the USD/JPY currency pair. It’s vital that you familiarise yourself with the different factors at play. There are internal factors as well as external factors. Having a perspective of the bigger picture will always put you in a better position of executing well-timed trades that provide you with a more profitable return. It’s the same when you consider how to trade GBP/USD.

✅What platform offers trading in USD/JPY?

There are a wide number of platforms that will allow you to trade the popular currency pair USD/JPY. Keep in mind that this doesn’t mean you should just settle for any old platform. There are those online brokers that provide a far better service. This will enable you to make the most of your trading experience and utilise all the latest features and trading tools. Trade forex with us and we’ll take you above and beyond.

❓Is the currency pair USD/JPY volatile?

You’ll find that certain pairs are less volatile than others. The time of day also plays a big role and thus it’s important to consider the trading session that you find yourself in. In order to take advantage of price movements that might provide a good trading opportunity, it’s important to stay in the loop with the latest developments and policy changes coming out of both countries. Coupled with a good strategy when you trade USD/JPY, you’ll be in the good position to capitalise. Not only can you use our trading platform to do all of this, but we’ll provide you with a strong background understanding of trading forex pairs.

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