The Japanese yen is the official currency of Japan – the third largest national economy in terms of nominal GDP. It is one of the most traded currencies in the foreign exchange market trailing behind the United States Dollar and the Euro. It is also a reserve currency alongside other currencies including the U.S. Dollar, the Euro, and the British pound. The economy of Japan is largely based on the manufacture and export of large quantities of automobiles and electronic goods while it recently started focusing on high-tech and precision goods.
Due to its high popularity, the Japanese Yen typically has high liquidity which translates to lower spreads and greater availability.
What Moves the Price of the JPY?
The price of the yen is moved by the same set of factors that move most currencies across the forex market. These factors include economic data releases, central bank announcements, natural disasters, geopolitical events, and government policies. However, there is also a specific set of factors that investors should be aware of when trading the currency:
The Tankan Survey
The Tankan Survey is an economic report issued by the Central Bank of Japan which covers thousands of Japanese companies that are either considered to be highly influential or have a specified minimum amount of capital. The companies take part in a survey and are asked about the current trends and conditions in the business place and their industries. They are also asked to present their expected business activities for the next quarter and year. The Tankan survey is released before Japan’s gross domestic product (GDP) data and is considered a key indicator for the report.
A currency carry trade is a trading strategy that involves borrowing in a low-interest currency to invest in a high-interest currency for a higher rate of return. The low-interest rates of the Bank of Japan make the yen an attractive currency for investors to borrow in order to buy currencies from other countries which pay a higher interest rate on their Money Market instruments. The pressure of low towards negative global interest rates combined with low-interest rates in Japan weakens the yen, motivating investors to liquidate their yen positions in favor of other assets.
Bank of Japan (BoJ) Interventions
The Bank of Japan has been selling the yen to keep the currency value low and maintain a competitive edge in exports globally.
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