USD/JPY is the forex ticker used to represent the US Dollar and Japanese Yen exchange rate on currency markets. It is used to ascertain the value of the US Dollar against the Yen, telling traders how many Yen are needed to buy a US Dollar. The Dollar-Yen combination is one of the most commonly traded forex pairs – second only to EUR/USD – because it values two of the largest and most influential economies in the world. Traders can use the live USD/JPY chart as an indicator of not only Japan’s economy, but as a benchmark for Asian economic health and even the global economy.
USD is the three-letter forex code used to represent the currency of the United States, the US Dollar. JPY is the code for the currency of Japan, the Japanese Yen. The Dollar-Yen currency pair assesses the value of these two economic superpowers’ currencies against each other – establishing how many Yen are needed to purchase one US Dollar. For example, if the live USD/JPY price was 110.00, it means that 110 yen are required to buy 1 dollar.
The pair is nicknamed ‘The Ninja’, after the heroic characters in popular culture that originated in Japan.
The Yen was perpetually weak during the first part of the 1980s. But, after finance officials from several major nations agreed to devalue the US Dollar via the Plaza Accord in 1985, the Yen strengthened quickly – USD/JPY fell from around 240.00 at the beginning of September 1985 to under 125.00 by the end of 1987.
Then, the Japanese stock market crashed in 1990, kicking off years of deflation. After finding a bottom in 1995, USD/JPY moved from a low of around 79.00 back up to 148.00 in three years. From 1999 to 2011, the Bank of Japan intervened in the market dozens of times to weaken the Yen, as they feared a strong Yen would prevent economic recovery. But the intervention only worked in the short term.
The financial crisis of 2008 brought additional strength to the Yen as investors began to view it as a safe-haven currency. The Dollar-Yen rate finally bottomed out at around 75.00 in October 2011. Since then, the Yen has weakened, driving the USD/JPY exchange rate higher. It has, however, remained below levels seen in the 1970s and 1980s.
Though Japan’s economy has been relatively weak, the Yen has remained a dominant currency in global trade and is still the third largest reserve currency in the world.
The USD/JPY forecast can be impacted by a range of factors that affect either economy, and it is important for forex traders to have an understanding of some of the key influences.
The Dollar-Yen rate will fluctuate based on the prices of imports and exports. Japan’s economy is reliant on exports, so the Japanese government has a history of intervening in the currency markets in order to make the price of its goods more attractive in international markets. But as one of the most industrialized nations in the world, Japan is also dependent on imports of commodities such as crude oil.
The Bank of Japan is notorious for intervening to keep interest rates low, which means that its rate releases can have a significant influence on the USD/JPY rate. The low interest rates in Japan have made the Yen extremely popular as a carry trade, so traders often sell the Yen to buy higher yielding currencies. This frequent selling of the Yen has kept its value low. The US Federal Reserve interest rate decisions will also play out across the Dollar-Yen.
These are just a few examples of what can influence the currency pair, but it is important to remain up to date with USD/JPY news. For live analysis, view our USD/JPY news and technical analysis articles below.
USD/JPY is a major currency pair. This makes it popular among traders because it often has a low bid-ask spread, and high liquidity. And with such a high volume of trades, it can be extremely volatile, which creates a range of exciting opportunities for traders to take advantage of rising and falling markets.
The US Dollar is the most traded currency in the world, and the Yen is the third (behind the Euro), which makes it important for traders to understand how to read the USD/JPY chart.
In the Dollar-Yen pair, the US Dollar is the ‘base currency’ – the currency you are buying – while the Japanese Yen is the quote currency, which tells you how much is required to buy one unit of the base currency. If the USD/JPY currency pair is trading at 112.00, it means you would receive 112 yen for each dollar sold.
When you see the price increasing on the chart, it could mean one of three things. It could mean that the US Dollar is strengthening, that the Yen is weakening, or that both are happening simultaneously. Some traders will apply various forms of technical analysis to their charts to make USD/JPY forecasts. Whether you look at price patterns or fundamental news events, the chart can give you a sense of current trends.
The initial Q1’19 US GDP report is due on Friday, April 26 at 12:30 GMT.
by Rich Dvorak
by Nancy Pakbaz, CFA