Trading USD/JPY

As a result of relatively low bid-ask spreads and enticing liquidity, trading the USD/JPY is a popular major currency pair. Also, its characteristics make it a tempting proposition for both beginners and experienced traders. This page will break down the history of the currency pair, as well its benefits and drawbacks. How to start day trading the USD/JPY in 2023 will then be covered, from charts and signals to strategy and trading hours.

Chart

USDJPY Chart by TradingView

Breaking Down ‘USD/JPY’

Firstly, what precisely does USD/JPY actually mean? Quite simply, it represents the exchange rate between the US dollar and Japanese yen. So, the figure you see quoted is how many Japanese yen you need to buy one US dollar. The US dollar is the base currency in this major currency pair.

Rich volatility and volume see a daily turnover in excess of $900 billion. This makes the USD/JPY the second most traded currency pair in the world, after the EUR/USD.

Furthermore, it’s responsible for approximately 17.7% of the forex daily turnover.

Why Day Trade USD/JPY?

There are a number of reasons why realtime USD/JPY day trading is an enticing prospect. Some of the most appealing characteristics are as follows:

  • Relatively low spreads – The USD/JPY remains popular. This is partly because of its comparatively low bid-ask spreads.
  • Volatility – This currency pair displays high levels of volatility, often driven by Asian market forces. As a result of this implied volatility, day traders have plenty of opportunities to turn a profit.
  • Volume – As it is based on two of the most active currencies in the world, market volume is huge. As a result, this popularity ensures finding trading tips and forex signals is relatively easy.
  • Predictability – The USD/JPY market is often linked to commodities trading in Japan. So, research and analysis are relatively straightforward. In fact, you can look to global imports and exports to gauge market sentiment.
  • Diverse trading vehicles – As such a popular currency pair, there are numerous trading vehicles you can use to generate profits. From E-mini and E-micro USD/JPY futures to options, ETFs, and more.
  • Beginner friendly – Relatively smooth trends and fantastic liquidity makes the USD/JPY pair appealing to both beginners and experienced traders.
  • Availability of resources – In many ways, conducting technical analysis from with a streaming chart is easier now than ever before.

This is because you have direct access to bar charts, average daily ranges, exchange rate history graphs, and more.

For example, conducting Elliott wave analysis is more straightforward.

In addition, there is an active online trading community, in the form of blogs.

Also, websites offer up-to-date market reviews and hourly forecasts.

So, firstly this pair is one of the most actively traded.

Also, technical outlook and availability of resources add to the benefits the USD/JPY currency pair offers.

USD/JPY Drawbacks

Before you load up your live online USD/JPY chart and decide whether to buy or sell, you should also be aware of the associated drawbacks and risks:

  • BoJ intervention – The BoJ has a habit of intervening in the forex market when price action and movements may threaten economic growth and the Japanese export industry.So, traders must keep abreast of BoJ developments.If not, you may be in be for a short, sharp, and expensive surprise.
  • Volatility – Whilst volatility is a benefit, it can also mean sudden price fluctuations.If traders aren’t vigilant, a winning position can quickly become a costly loss.For example, natural disasters can have a huge impact on their closed economy.So, the USD/JPY is accompanied by a serious degree of risk.
  • Dangers of leverage – Whilst borrowing funds enables you to capitalise on winning opportunities, it can also amplify losses.

When it comes to margin trading with a volatile pair like USD/JPY, it can easily lead to significant capital loss.

  • Automated competition – Traders today face a major challenge from trading algorithms. These intelligent bots use yearly charts and current drops to make predictions, while you may still be manually drawing head and shoulders patterns. Automated systems are already entering and exiting positions, making competitive forward rates and USD/JPY forecasts more crucial than ever.

The USD/JPY pair has its advantages, but it also presents challenges. That’s why it’s crucial to learn how to analyze the market and read the USD/JPY accurately.

Influences On Movement

For accurate USD/JPY chart investing, it’s essential to understand what causes movement. The most significant influences are:

  • Economic strength – The USD/JPY relationship is heavily influenced by respective economic strength. When the US economy suffers, the yen tends to strengthen, and vice versa. Key economic indicators include unemployment rates, wage growth, and industrial production.
  • Japanese imports vs exports – When the Japanese import more than they export, the US dollar strengthens against the yen, as they are purchasing more than they are selling.
  • On top of that, because Japan is a huge exporter, trading relations with countries such as China can also impact the USD/JPY pair.
  • Japanese national disasters – Due to its size, any natural disasters can have a substantial effect. However, the US economy is unlikely to be impacted to such a significant extent.
  • Pace of currency growth – On the whole, the US economy grows at a much faster rate than that of Japan. In fact, the yen has been growing slowly in recent years. As a result, this means there has been a consistent downward trend against the US dollar.
  • Government intervention – The Federal Reserve of the US (Fed) and the BoJ are responsible for monetary policies. Although this is currently of particular importance in Japan. This because the government has introduced a number of initiatives to bolster the economy. So, traders should pay close attention to any breaking news in relation to new measures, such as changes to interest rates, quantitive easing, and inflation.

To conclude, spotting trade opportunities in the USD/JPY requires an understanding of how these underlying forces work to tip the balance in favour of each currency. With that knowledge, telling whether prices will start going up or down may be easier.

Currency Correlations

Currencies do not move independently of each other and the USD/JPY pair is no exception. In fact, the USD/CHF and EUR/USD are the two other pairs with the highest correlation to the USD/JPY.

The former has a positive correlation, and the latter a negative correlation.

  • Positive correlation – This is when currency reacts in line with each other. For example, GBP/USD, AUD/USD, and EUR/USD are all correlated. This is a result of the US dollar being the counter currency, so any changes in the US dollar will be felt in all pairs.
  • Negative correlation – When currency pairs move in the opposite direction, they are negatively correlated. In fact, this happens in the USD/JPY, USD/CHF, and USD/CAD. This is a result of the US dollar being the base currency.

Of course, it isn’t quite that straightforward, the degree of correlation can also change. It is taken as a measurement from -1 to +1. So, an understanding of this will allow you to use movements in other pairs to predict fluctuations in the USD/JPY.

In fact, there are several Japanese yen pairs that are highly correlated to the USD/JPY:

  • CAD/JPY
  • CHF/JPY
  • EUR/JPY
  • SGD/JPY
  • HKF/JPY

USD/JPY & Gold Correlation

It’s also worth pointing out that although gold is not a currency per se, as a result of electronic trading capabilities, it is now traded in much the same way. The yen is actually highly correlated to gold. So, USD/JPY and XAU/USD (gold/US dollar) are negatively correlated. The higher USD/JPY moves, the lower gold usually goes.

So, technical analysis now needs to cover more than the basics of support and resistance levels.

If you can also utilise currency correlations to your advantage, you may be able to factor greater returns into your profit calculator.

USD/JPY Day Trading Strategy

Timing

Whether you opt for a USD/JPY scalping or breakout strategy, when you trade could make all the difference to your intraday profits.This is because in the day trading forex space, timing is everything.

Capitalising on USD/JPY targets requires trading during prime time slots.FX day trading may be available 24/7, but you could be better off focusing on quality rather than quantity.

Normally, when London and Europe are open for business, pairs with the Euro, British pound, and Swiss franc are most actively traded.Then, when New York opens, currency pairs with the US dollar and Canadian dollar gather momentum.

The USD/JPY, however, doesn’t quite follow this tradition.The pair sees relatively consistent volume throughout the day, of course with occasional spikes in volatility.Having said that, it is fairly accepted that the best time day trade the USD/JPY is between 1200 and 1500 GMT.Both London and New York are at full pace in this period.Although Tokyo’s opening time comes afterwards, the biggest daily moves often take place during this time frame.

At these times, you will also benefit from the tightest spreads and potentially the greatest opportunities to generate profits.So, check for intraday volatility and focus your trading capital into this time slot.

Rise & Shine

Determined USD/JPY day traders are at their desk premarket, preparing for the trading day ahead.

Furthermore, they may have their economic calendar in front of them, along with historical exchange rate data on an Excel spreadsheet.

Whilst everyone else is just waking up, they’ve poured through discussion forums and data, so they have clear expectations for the day ahead.

Related stock shifts and daily pivot points may surprise others, but early risers are often ready and waiting to react.

By closing time, unlike most, they haven’t sunk into the red.

So, in the forex world, where short and sharp reversals are a regular occurrence, preparation is key.

Even if it means working outside of your normal market hours.

Simple Moving Average Cross & Bounce

The good news is, the USD/JPY is ideal for intraday trading.

In fact, you can often see spikes between the 20 to 40 pip range within the first few minutes of the market’s opening.

So, what strategy can you use to capitalise on rich price action movement?

The simple moving average cross and bounce is a straightforward strategy to set up and execute. Although some prefer USD/JPY 15-minute charts, this technique works best with a 4-hour candlestick chart.

The indicators you will need are as follows:

  • MA (50/200)
  • BB (20)

Buy Entry Rules

1.The BB (MA20) must be above MA (50).

2.Price needs to cross above both BB (MA20) and MA (50).

3.Price also must test BB (MA20) as support whilst above MA (50).

4.Look for bullish confirmation candle from support.

5. Enter buy trade.

Enter a buy/long entry.

Sell Entry Rules

1.BB (MA20) needs to be below MA (50).
2.Price has to cross below both BB (MA20) and MA (50).
3.Price needs to test BB (MA20) for the resistance whilst staying below MA (50).
4.Look for a bearish confirmation candle from resistance.
5.Place a short/sell entry.

To minimise risk you should also look to incorporate stop-losses. So, place a stop-loss at the bottom/top wick of the confirmation candle, dependant of course, on whether you are buying or selling. You should then allow the price to move in the trade direction.

Once the price retests MA (20), you should move the stop-loss to the top/bottom wick of the candle. Keep repeating this until the price no longer stays above/below MA (20) and hits the stop-loss.

News

The latest market news updates on the USD/JPY currency pair can quickly affect market sentiment and lead to shifts. However, you can only capitalise on these moments if you understand how the markets reacted last time something like this happened.

So, to keep abreast of live news updates, recommendations, daily, weekly, and monthly forecasts, plus technical analysis and commentary, consider some of the popular resources below:

  • Bloomberg
  • Forex Factory
  • Yahoo Finance
  • Google Finance
  • Reuters
  • CNBC

In addition, here are just a few more benefits some of the sources above can offer:

  • Daily forex outlook.
  • Latest USD/JPY forecasts for 2018.
  • Historical prices.
  • 20-years, 30-years, and 50-years worth of historical graphs and long-term charts.
  • Trading definitions.
  • Weekly and monthly data.
  • An overview of yesterday’s USD/JPY performance and prices.

Regardless of whether your USD/JPY strategy focuses on resistance and support levels, or whether it centres around news events, being aware of current updates in the forex space could seriously enhance your technical analysis.

History

Japanese Economy

To make accurate USD/JPY predictions and forecasts, it also helps to understand some key events in the pair’s relationship.

Japan may lack natural resources and geographic size, but their work ethic, success with technologies, and boundary-pushing manufacturing techniques have ensured the economy has flourished since the damage it suffered in World War II.

As a result, today the Japanese economy stands as the largest after the US and China.

However, historical data and news show us the Japanese economy came upon hard times in the early 1990s. This is because the real estate and domestic equity bubbles burst. As a result, the economy decelerated and there was substantial deflation.

However, the last twenty years have seen the introduction of a number of measures by the Japanese government and Bank of Japan (BoJ) to rejuvenate the economy. Whilst not totally successful, there is little debate that their economy today is a major player on the global stage.

Why does all this matter if you want to start day trading on the USD/JPY? Because an understanding of what and how previous factors have influenced economic strength and growth will give you a clearer future forex outlook. All of which may result in more accurate predictions and forecasts.

Japenese Yen

Since its introduction in July of 1871, the yen has flourished, becoming the most traded currency in Asia, and the third most popular in the world, following the US dollar and euro. On the whole, when the Japanese economy performs well, the yen increases in strength against the dollar.

In fact, steps that were taken to keep interest rates low to stimulate the economy have lead to the yen becoming an increasingly popular carry trade. This is where investors sell the yen to buy higher-yielding currencies. This constant selling has kept the yen at a much lower trade level than it may have reached otherwise.

See our carry trade page for additional details.

As a result, it is important for USD/JPY traders to stay updated on new data and information related to Japan’s economic growth and recovery. In the event that rates rise and the yen carry trade loses popularity, the yen may strengthen.

US Dollar

The US dollar has been the standard US monetary unit for more than two centuries. Following World War II, the Japanese yen and economy suffered, while the US economy and dollar thrived. This was due in part to the 1944 Bretton Woods Agreement.

Indeed, by examining USD/JPY historical exchange rate data, one can see that this agreement played a significant role in securing the success of the US dollar. Specifically, it ensured that the US dollar became the world’s official reserve currency.

Recent History

The USD/JPY relationship has gone through significant fluctuations in recent years, with both currencies and economies experiencing ups and downs. The year 2013 was particularly noteworthy, with some intriguing results:

  • The US dollar was one of the currencies involved in an astounding 87% of all forex trades.
  • The Japanese yen, on the other hand, saw the biggest increase in trading activity among the other major currencies, rising by 63% since 2010.
  • In April 2013, USD/JPY trading made up 18.3% of total FX turnover, a 4% increase from only three years prior.

USD/JPY historical data has demonstrated that both economies and currencies have had their moments in recent years.

However, understanding what has caused their successes and shortfalls will enable you to better predict and react to future reports.

Role of USD Day trading the USD/JPY currency pair

You can’t get a clear view of the USD/JPY relationship without understanding the significant role the US dollar plays. So below are just a few ways it holds a unique position in global finance:

  • Numerous banks around the world hold currency reserves in US dollar.
  • Many small countries even opt to use US dollar instead of their own currency or peg their currency to its value.
  • OPEC countries also use the US dollar to conduct oil transactions.
  • It is often used to settle international financial transactions.
  • Gold prices and other popular commodities are also frequently set in US dollars.
  • It is currently the most commonly traded currency in the world.
  • The US is the second largest trading nation, after China.
  • The US represents around 25% of the global nominal GDP.
  • Services such as real estate, financial services, transportation, and healthcare form nearly 80% of its GDP.

Aspiring day traders would be wise to get an understanding of the reach and prominence the US dollar holds. In fact, monitoring US economic strength will help you to forecast how the USD/JPY will strengthen or weaken in favour of the US dollar.

However, effective monitoring means looking out for signals and economic indicators.Some of the key reports to follow include:

  • Trade Balance
  • Consumer Price Index (CPI)
  • Producer Price Index (PPI)
  • Non-farm payrolls
  • ISM Non-manufacturing
  • ISM Manufacturing
  • Trade Balance
  • Federal Reserve Minutes
  • Retail Sales
  • Industrial production

So, by looking at charts and historical graphs, you get a feel for why certain currency pairings react as they do.Hourly charts and key levels may be important for your forex outlook today, but so too is information on events decades ago.Overall, all will enhance your understanding of what drives movement in the USD/JPY currency pair.

Role of JPYDay trading on the USD/JPY currency pair

It’s all too easy to focus your attention on the strength and role of the US dollar.However, the Japanese yen also plays a vital role.This is because it is the most liquid currency in Asia.Which also makes it a gauge for Asian economic growth.

In times of economic instability and volatility in Asia, traders often respond by buying or selling the yen.This is because other Asian currencies are more challenging to trade.A spike of which, can seriously impact market prices and quotes for the USD/JPY.

Also, it is traded in such high volume because the yen is accompanied by extremely low-interest rates.