The Japanese Yen index tracks the performance of the JPY by comparing it to a basket of relevant currencies. This tutorial will explain what the index is and how it is calculated, as well as historical data on the performance of the Japanese Yen index. It will also cover how inflation and other factors impact its value. Use our ranking of the best Japanese Yen index brokers to start trading.
What Is The Japanese Yen Index?
The Japanese Yen index is used to track the overall performance of the JPY by comparing it to a group of other key currencies, such as the USD, EUR, and GBP.
The Japanese Yen Currency Index (JXY) is perhaps the most widely followed Yen index, but there are other indices such as the Dow Jones FXCM Yen Index that traders also follow.
Investors often use the index to make trading decisions by identifying trends in the value of the Japanese Yen and predicting future movements in the currency. The JPY index ultimately provides a benchmark of the performance of Japan’s currency relative to other major currencies.
Weighting
Japanese Yen indices are calculated against a basket of currencies. The composition and weighting of this basket will depend on the index in question; bear in mind that individual brokers may offer their own take on the Japanese Yen index.
For example, the Dow Jones FXCM Yen Index basket comprises USD, EUR, AUD and NZD, with a market value weighting that is rebalanced each quarter.
The international broker FXCM offers its own JPY basket index, comprising AUD, USD, GBP, EUR and CAD with equal weighting.
The weighting at CMC Markets is:
- 40.00% – JPY/CNH
- 26.56% – JPY/USD
- 16.26% – JPY/EUR
- 6.42% – JPY/AUD
- 3.87% – JPY/SGD
- 2.86% – JPY/CAD
- 2.24% – JPY/GBP
- 1.79% – JPY/CHF
Live Price Chart
History Of The Japanese Yen Index
The Japanese Yen was historically considered a ‘safe haven’ currency, meaning that during times of economic uncertainty or market volatility, the value of the Yen tends to rise as investors flock to it as a safe place to park their money.
Until the last few years, the Japanese Yen enjoyed a relatively stable exchange rate against the US dollar, fluctuating between a range of 80–120 to 1 USD.
During the financial crisis of 2008, the Yen appreciated sharply against the US dollar, reaching a high of around 75 to 1 USD in 2011.
This appreciation was partly due to the safe-haven status of the Yen, as investors sought a secure location to put their capital amidst economic ambiguity.
Some argue that today the Japanese Yen has moved away from this status as import prices have outstripped export prices in Japan and the central bank has kept interest rates low despite high inflation.
In the past two years, the historical Yen rate has fluctuated in a range of 105-125 to 1 USD, due to multiple factors such as the third wave of COVID, the monetary policy of the Bank of Japan, the latest fiscal stimulus package, as well as geopolitical events and market sentiment.
What Factors Influence The Japanese Yen Index?
Traders should consider the multiple factors that affect the price of the Japanese Yen index:
Economic Conditions
The relative strength of the Japanese economy and the economies included in the index, including factors such as GDP growth, inflation, and unemployment, can affect the demand for the Yen.
The same is true for the currencies the Yen index is measured against – if the US economy does poorly (e.g.greater rate of reduction in GDP) in comparison to the Japanese economy, the index value is likely to rise.
Interest Rates
The interest rate set by the Bank of Japan (BOJ) compared to other central banks can affect the demand for the Yen, as higher interest rates make a currency more attractive to investors.
If you can accurately predict the movements of big investors, you can predict the direction the Japanese Yen index will move in.
High interest rates mean more return on investment, and more investment will lead to an increase in the relative value of the Japanese Yen.
Trade Balance
Japan has a large current account surplus, which means the value of its exports is greater than the value of its imports.
Current account surpluses mean a strong currency for the country.
Anything decreasing exports or increasing imports (such as geopolitical events) will weaken the Japanese Yen index.
Pros Of Trading The JPY Currency Index
- Unique characteristics of the Japanese Yen make it an interesting product to trade that may perform well during periods when other major currencies slump
- The Japanese Yen index tends to be less volatile than a currency pair as it is shielded from miscellaneous factors that might cause large price shifts between two individual currencies
- The JPY index gives an objective view of Japan’s overall economic performance without needing to factor in trends in other countries and regions
Cons Of Trading The JPY Currency Index
- There is a limited list of brokers that offer the Japanese Yen index
- Less choice of trading vehicles compared to more popular currency indices, such as the US Dollar index
How To Trade The Japanese Yen Index
This guide shows the simple steps needed to begin trading the Japanese Yen index:
Choose A Vehicle
The Japanese Yen index is not as widely traded as the US Dollar index, so there are not many brokers that offer the instrument. The most popular brokers to offer JXY include CMC Markets and FXCM.
At FXCM, the product is labelled ‘JPYBasket’ as opposed to the typical JXY symbol, while CMC Markets calls it ‘CMC JPY Index’
You may be able to trade a Yen index through a variety of trading vehicles, but the most common is contracts for difference, or CFDs. The main advantage of CFDs is the availability of leverage, which greatly increase your trading power, allowing for large profits from relatively small amounts of starting capital. Pepperstone, for instance, offers 1:5 leverage on the JPY index.
Select A Broker
Choose a broker that offers a Yen index. The broker you pick will depend on your own personal trading criteria, but there are several common factors to consider when making your choice:
- Does the broker offer low fees and spreads? Make sure you check both up-front fees like commissions per trade and additional costs such as account maintenance charges, withdrawal fees and inactivity penalties. The minimum spread at CMC Markets, for example, is 5 pips on the JPY index with a 0.01 minimum order side.
- Is the JPY index broker regulated and highly rated by users? Leading regulators include the JFSA in Japan, the FCA in the UK, and the ASIC in Australia.
- Which trading platforms does the broker support?
The most popular tools include MetaTrader 4 (MT4) and MetaTrader 5 (MT5).
- What range of assets does the broker offer besides the Japanese Yen Index?
- Does the broker offer a demo account so you can practice your Japanese Yen index trading strategy?
The top JPY index brokers also offer individual currency pairs, stocks, and commodities.
Sign Up
To create an account with a Japanese Yen index broker you will need to enter your personal information on an online form and then provide documents to verify your identity. These are usually government-issued documents, such as a passport or driver’s licence, as well as some form of correspondence to verify your address.
Once you’ve signed up, navigate to the broker’s ‘cashier’ or deposit tab to fund your account.
Place A Trade
Study the historical exchange rate graph of the Yen index to identify trends and patterns, this will give you a sense of the direction the currency has been moving in and the factors that influence it. You can use technical analysis tools such as trend lines, moving averages, and candlesticks to help you with this.
Make sure you also keep up to date with news about the determinants of the Japanese Yen index, such as natural disasters in relevant countries, inflation or GDP changes, and general elections.
When you feel comfortable with your knowledge of the JPY index’s performance and the market conditions, you can execute a trade.
You may be able to do this by setting a market order that will open your trade when the Yen index reaches a specific price. You can also set stop loss and take profit levels as a standard form of risk management.
Trading Hours
The Japanese Yen index’s trading hours are likely to depend on the hours offered by your broker. CMC Markets, for instance, offers the JPY index from Monday to Friday, 00:00–22:00 with no weekend trading.
Final Word On Trading The JPY Index
The JPY currency index can be an exciting yet less-volatile way to venture into the Japanese Yen trading market. However, it is not the most common index and is therefore difficult to find brokers that offer JXY products. Use our list of the top Japanese Yen index brokers to start trading.
FAQ
Is The Japanese Yen Index Real?
The concept of the Japanese Yen index is real, however the JPY index does not exist as a tradeable index the same way as other more common indices do, such as the Dow Jones or FTSE.
If the JXY is offered by a broker, the specific weightings and trading conditions are decided by the brokerage, including the available leverage, spreads and overnight fees.
Which Is The Best Japanese Yen Index To Trade?
There are several Yen indices offered by online brokers, and each is composed of its own basket of currencies with their own weighting.
What Does The Japanese Yen Index Show?
The JPY currency index offers insights into the value of the Japanese Yen compared to other popular currencies, such as the US Dollar. It can be used as a benchmark of overall economic performance. It can also be traded as a derivative product at some of the best online brokers, including CMC Markets and Pepperstone.
What Influences The Value Of The JPY Index?
Japan has an account surplus, so events that decrease exports or increase imports will weaken the value of the JPY currency index. A rise in interest rates announced by the Central Bank of Japan can also cause the index to rise.