Think of the forex market as a ball room where the currencies are the dancers.
There will be dancers who will sit through most of the sons with very little activity while others will be all, over the place through every song.
There are others who will only respond to particular tunes. Additionally, every individual dancer will have his/her unique moves and dancing styles.
In that same way, currencies are each unique and respond in different ways to market conditions.
Some are highly volatile while others are solidly stable with very little price movement.
The same market events result in different market reactions by the currencies.
For this reason, any forex trader who dreams of success needs to be very familiar with these unique intricacies especially when it comes to their traded currencies and the currency majors.
Basic Facts about the Yen
Over 80% of the total currencies exchanged involve only about 8 currencies known as the majors. The Japanese Yen (JPY) is one of the major currencies traded on the global currency exchange market.
This is in part because Japan is one of the biggest world exporters, has one of the largest GDPs globally, and is one of the world’s economic giants.
The Bank behind the Yen
Every currency has a central bank behind it and for the yen it is the Bank of Japan (BOJ). The BOJs major responsibilities include encouraging growth, minimizing inflation, stimulating demand, and avoiding deflation.
The Economy behind the Yen
The Japanese economy is one of the most peculiar you can come across. While most countries struggle with inflation, Japan struggles with persistent deflation especially in the last decade.
Additionally, despite the gigantic size of its economy, Japan has been experiencing a lack of growth attributable to many factors. These include successive unstable governments where no political party has held any convincing majority to drive policy in the legislative houses.
Another factor is the country’s low fertility rates. This results in an ageing workforce and a burgeoning pension payment. This decrease in youthful workers to support economic productivity or drive consumption restricts the growth of the economy.
As a country, Japan is also very much closed to the influx of immigrants and has difficult to penetrate demographic systems. This makes is much harder to expand on the labor pool.
Drivers of the Yen
Like almost all other currencies, the JPYs value is determined mainly by the market factors of supply and demand and an array of various psychological factors.
The Tankan Survey is a quarterly publication that releases business confidence and has a high impact on the value of the Yen.
Other factors that have a high impact on the yen’s value include:
- Elections
- Changes in government policy
- Occurrence of natural disasters
- BOJ interest rates
- Trade balances
- Inflation/deflation levels
- Stock market performance
- Global factors such as war and relations with China
What Makes the Yen Distinctly Unique?
The fact that the JPY is one of the currency majors yet it has near-zero interest rates makes it the most ideal currency for carry trading. Thus, the yen has been the primary source of carry trade funding globally.
To help maintain the competitiveness of Japanese exports, the BOJ has in the past sold substantial amounts of the Yen in currency interventions. The yen acts as the reserve currency for very many Asian countries and is the Asia’s signature currency.
Japanese investors are unique in that they are willing to accept the low rates of returns offered by their currency. Thus, most of the country’s debt is internal.
Threats to the Yen
The yen has always been considered a safe haven currency. However, this is threatened by positive the growth in the trade balance.
The currency is also facing threats from the ever-growing Chinese Yuan. Other threats include the aging workforce and the prolonged dwindling business and consumer confidence.
