Trading GBP/JPY

Every day investors from all over the world fire up their computers to start day trading the GBP/JPY, otherwise known as the ‘Beast,’ ‘Dragon’ or ‘Geppy.’ This page will look at the history of the GBP/JPY currency pair, as well as its benefits and risks, including notable volatility and liquidity. We then break down strategy, charts, technical analysis, trading hours, plus investing tips for 2023.

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GBPJPY Chart by TradingView

GBP/JPY Trading Explained

What does GBP/JPY mean?It is the relative value of the British pound against the value of the Japanese yen.Both are traded enough to qualify them amongst the top six global currencies.Today the yen accounts for around 16.8% of trading volume, while the pound represents approximately 12.8% of forex volume.The pair is considered a ‘cross.’ This means the US dollar is not used when calculating the exchange rate.

Why Day Trade GBP/JPY?

With so many currency pairs and trading vehicles available, including ETFs, futures, and options, why does the GBP/JPY warrant your attention?

• Volatility – It ensures plenty of opportunity for generating profit.

Few currencies offer the volatility the GBP/JPY does. The pair moves on average 160 pips a day.

• Carry trades – The pound is a high-yielding currency, while the Japanese yen is a low-yielding one. That allows greater volatility and investors to implement a carry trade strategy, borrowing JPY to fund GBP.
• Risk tracking – When world economies look good, stocks and commodities rise while bonds fall. When things go the other way, the situation reverses. Those with an appetite and aversion to risk can utilize macro-economic sentiment to profit from market dynamics. GBP/JPY rises and falls with stocks and commodities.
• Availability of resources – Realtime trading today is more accessible than ever before. You have direct access to graphs, candlestick charts, and amazing indicators. For example, conducting Elliott wave analysis is more straightforward. In addition, you can access knowledge-rich trading communities like forums and trading analysis blogs.

Drawbacks & Risks

Downsides to day trading GBP/JPY include:

• Amplified losses – Daily trends can be strong; you often need to set wider stop-losses. Otherwise, you could experience significant losses.
• Volatility – As one of the most volatile currency pairs, false signals are frequent. Traders can lose money and learn painful lessons. It isn’t nicknamed the ‘widow maker’ for no reason.
• Experience required – Although the promise of pips attracts beginners, many traders suggest that novice investors stay clear.

• Volatile moves in a consolidation phase are just one straightforward way you can be taken out.
• Automated competition – You must compete against sophisticated trading algorithms and expert advisors. As a result, how to trade successfully is no longer clear. You need more than historical charts, average daily ranges, and forecast analysis. The best indicator for the GBP/JPY pair may no longer be enough.

Influences on Movement

Energy Commodities

The relationship between the Japanese yen and energy pricing can have a significant impact for investing. Japan buys crude oil and natural gas to satisfy domestic energy requirements. In 2020, Japan was the 4th biggest importer of crude oil and second for natural gas.

There is a strong link between the price of the Japanese yen and the price of energy commodities. Historical data shows that when global energy prices shift, the yen usually moves in line with them. This has a knock-on effect on the GBP/JPY.

Other Factors

• News – Favourable or negative events pertaining to the GBP, JPY, or to their respective countries
• Indices – The UK’s FTSE 100 and Japan’s Nikkei 225 stock market index can also lead to strengthening and weakening
• Market sentiment – The market’s overall emotions and thoughts about each currency are reflected in the price of the GBP/JPY
• Currencies – The US dollar and euro, in particular, will impact the GBP/JPY.

• Currency pairs do not move independently of each other
• Governments – Major political elections and decisions impact the strength of respective currencies, such as Covid-19 policies
• Bonds – Gilt (debt securities issued by the BoE) and GJGB10 (Japan Generic Govt 10Y Yield) will influence the relationship of the highly volatile pair
• Bank of England (BoE) – This central bank and lender of last resort oversees monetary policy and interest rates.Its actions significantly affect the pound and the British economy as a whole
• Bank of Japan (BoJ) – The BoJ has been applying extremely low-interest rates for years, impacting the strength of the Japanese yen vs. the British pound. Day traders should monitor the Consumer Price Index (CPI), a key indicator of JPY-related currency crosses

Investors can feel wars and natural disasters in the GBP/JPY relationship. The savvy day trader won’t just focus on charts from Yahoo and historical data. They will keep track of multiple global factors using various sources.

Currency Correlations

Foreign exchange currencies do not move independently of each other. Because they are traded in pairs, their movements are tied to the movements of other pairs.

For example, if you are trading the GBP/JPY, you are handling a derivative of the GBP/USD and USD/JPY pairs.

This means that GBP/JPY is related to either or both of the other pairs.The problem is they can move with each other and in the opposite direction.Plus, their correlation can change.

• Positive correlation – Occurs when pairs react in line with each other. GBP/USD, AUD/USD, and EUR/USD, the three most commonly traded pairs, are all positively correlated.That is because USD is the counter currency, and any change will impact all pairs
• Negative correlation – Takes place when currency pairs move in the opposite direction. USD/CHF, USD/JPY, and USD/CAD are excellent examples.This happens because the US dollar is the base currency

Correlation is a statistical measure ranging from -1 to +1.The former is when currency pairs move in opposite directions and the latter when they move together.

Calculation

The best way to understand how this knowledge can assist you day trading the GBP/JPY is to be the correlation calculator yourself.All you need is an Excel spreadsheet:

1. Input price data from your currency pairs, GBP/JPY, for example
2. Create two columns, one for each pair
3. Fill the columns with the past daily prices over the period you are interested in
4. Type =CORREL in an empty box at the bottom
5. Highlight all the data in a column, and you will get a range of cells in the formula box.

1. Type in a comma
2. Repeat steps 3 to 5 for the other currency
3. Close the formula. It will then look like =CORREL (A1: A25, B1: B25)

The final figure is the correlation between the two currency pairs.

GBP/JPY Day Trading Strategy

Timing

Whether you opt for a breakout or scalping strategy, timing is essential. So, when is the best time to trade GBP/JPY? You want to focus your trading around key economic releases at 01:30, 02:00, 08:30, and 10:00 EST. Also, consider the Asian European overlap, which runs from 00:00 to 03:00 EST. This is when you will see the most liquidity for the Japanese yen, plus the European yen crosses.

Breakout Strategies

The volatility of the GBP/JPY means the pair can trade wide swings in either direction, making trading breakouts an appealing technique. You can capitalize on profits when big swings are correct and minimize losses when they move against you. A top tip is to regularly monitor your support and/or resistance lines and levels because the volatility can cause severe fluctuations in a short time frame.

20 Pips GBP/JPY Scalping Strategy

This method is straightforward. You use 5-minute time frames and free GBP/JPY signals. You will also need 25 exponential moving averages (EMAs) on the indicator front. When the price is above 25 EMA, you are seeing an uptrend. When the price is below 25 EMA, it is considered a downtrend. The angle of the trend is essential. A relatively horizontal angle means the market is ranging.

There is a solid trend if the angle is around 30 degrees or higher.

Buy Setup

• Moving average angle is 30 degrees or more
• The price has to be moving above the 25 EMA line
• Your buy signal is a bullish pin bar.So, buy at market price once the bullish pin bar closes
• Place your stop loss at least 10 pips under the low of the pin bar
• Your profit target will be 20 pips

Sell Setup

• Look for a moving average angle of 30 degrees or above
• Price should be moving below the 25 EMA line
• This time it is a bearish pin bar that is your sell signal.You should sell at market price once the bearish pin bar closes
• Again, opt for a stop loss of 10 pips above the high of the pin bar
• The profit target is also 20 pips

Because the range of the GBP/JPY can be anywhere from 150-200 pips a day, there is ample scalping opportunity.However, be warned this system may underperform in ranging, non-trending markets.

Trade Size

Whatever your strategy, the GBP/JPY can turn bullish or bearish quickly.You must set stop losses wide, with small lot sizes.You may even want to consider cutting your trade size to around a third.This allows you to aim for higher targets and reduce potential losses in a volatile currency pair.

Summing Up Strategy

One person’s best GBP/JPY strategy may not generate consistent profits for another investor.

The trick is finding a strategy that compliments your trading style. Some focus on bar charts and daily pivot points, while others prefer economic calendars and news events.

For more guidance, see our strategy page.

History

Early History

The British pound is thought to be the oldest currency in the world still in use. A turning point came in 1940 with the Bretton Woods agreement. The pound pegged to the US dollar rate at £1 = $4.03. A system that was used to govern post-war exchanges for the next thirty years.

The Japanese yen, which means ‘circle’ or ’round object,’ is much younger than its British pound counterpart. The Meiji government introduced it in 1871 to replace the unstable Edo period, where no standard currency exchange existed. However, the yen lost its value during World War II. From 1949 to 1971, the yen was equivalent to 1 US dollar.

Global Credit Crunch

A critical period in the currency pair’s relationship was the global financial crisis of 2008. Between 2007 and 2009, the pound was clearly under pressure. In response to this, it weakened against the yen. GBP/JPY traded from a high of 250.13 to a low of 121.21, a staggering decline of over 50%.

Brexit

The Brexit decision of 2016 also had far-reaching implications. Although the repercussions were felt for less time than the crunch of 2008, volatility was still substantial. In June 2016, the GBP/JPY traded from a high of 160.66 to a low of 133.31.

Covid-19

To mitigate the effects of COVID-19, Japan authorized a US$1.1 trillion stimulus plan in May 2020.

In addition, the Bank of Japan (BoJ) bought exchange-traded funds (ETFs) and pumped huge amounts of yen and foreign currency into the financial markets.

The British government created a £30 billion stimulus package in August 2020. It included lowering interest rates to near-zero, financing £190 billion to companies, and buying £435 billion in government bonds. Throughout 2020, the pair traded between a high of 144.78 and a low of 127.55.

However, the all-time records for this currency pair weren’t at either of these periods. Instead, they were:

• All-time high – This was 1014.000 on 1st of January, 1963
• All-time low – 116.853 was recorded on the 19th of September 2011

Role of the Great British Pound

Before you start focussing on your GBP/JPY trading signals and system, it helps to have some context about the role these two currencies play.

Although the UK is relatively small in size, its economy is one of the largest in the world. It plays a leading role in international financial markets. London is thought of as the forex trading capital of the world.

The UK was at one time the global superpower, with the largest economy on the planet for over one hundred years. The British pound was considered the world’s unofficial reserve currency. However, the world wars sparked a decline. Stringent government regulations and restricted labor markets further impacted the economy.

The economy has since stabilized partially due to the UK’s role as a key global player in financial services.

Role of the Japanese Yen

Japan is one of the biggest economies in the world, boasting one of the highest GDPs, plus it is a huge exporter.

However, it has had a challenging few decades. Low fertility rates and an ageing workforce have also made taxation and consumption a constant battle.

Despite troubles, their workforce is well-educated, and while industries such as shipbuilding have moved to China and South Korea, Japan remains a leading manufacturer of electronics and technological components. Japan is now heavily reliant on China as a trade partner.

The main driving forces are interest rates and price action. However, there are other economic data releases that traders should keep an eye out for:

• GDP data
• Retail sales
• Inflation data
• Trade balances
• Industrial production
• Employment rates
• Central bank policies

Google Finance, Yahoo Finance, Bloomberg, and Reuters are good GBP/JPY news resources. For truly yen-specific information, the Tankan survey is particularly useful. This is published quarterly online by the BoJ.

Final Word on GBP/JPY Day Trading

The GBP/JPY is thought of as a gauge for global economic health, as it reflects issues affecting both Western Europe’s monetary policies and those in the Asia-Pacific region. Phenomenal volatility and wide trading ranges attract vast numbers of day traders.

Success will be no easy challenge when you open up your live forex chart. You will need an understanding of how and what influences each currency and economy, fundamental analysis, charts, patterns, and the news to spot potential opportunities.

Only then can you begin your journey to join the likes of famous forex traders, Ed Seykota and Richard Dennis.

For more guidance, see our forex trading page.

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