Trading USD/JPY

Introduction

The second most popular currency pair is USD/JPY. According to statistics by the Bank for International Settlements it generates around 18% of the daily trading volume on the Forex market, which explains the pairs popularity among binary traders. Sometimes you may see this currency pair also being called ‘the gopher’.

The Gopher in detail

The USD/JPY or the dollar/yen consists of two parts – the US dollar is the base currency and the Japanese Yen is the quote currency. Basically, the USD/JPY’s value shows how many Japanese Yen the trader has to sell in order to buy one American Dollar. If the value of this pair is 102.72, a trader has to spend 102.72 Japanese yen in order to buy one US Dollar.

The exchange rate of the USD/JPY cross can be influenced by many factors, the most important of which is the condition of the American and Japanese economies. A robust economic growth implies higher interest rates which will attract foreign capital. This in term means that the foreign investors will need to convert their local currencies for US dollars in order to invest in the US economy (respectively yen for investments in Japan). This increases the demand for the US dollar (yen) and raises its value. Conversely, a weakening economy will generally apply negative pressure on the nations currency.

If however, a currency becomes too under- or overvalued, central banks tend to intervene in a number of possible ways, which commonly has an instant and decisive effect on the national currency. To read more about central bank interventions, read our article “Monetary Policy Announcements and Verbal Interventions” and a relevant Forex trading article “Positioning According to Central Banks’ Interventions“.

Example

Let’s say that a trader is looking for the right time to place a Call/Put option on the USD/JPY currency pair. The latest news show that the Federal Reserve is presenting new measures whose goal is to strengthen the US dollar. These measures may range from raising the benchmark interest rate to cutting Feds quantitative easing program. In both cases, the US dollar is expected to appreciate.

As the US dollar gains in strength, if there are no news that would support the Japanese yen, then the Asian currency will likely lose ground against the “greenback”. In this situation it would be wise for every trader to place their money on a Call option, betting that USD/JPY will go up.

Conclusion

Every binary options trader has a different trading style – some may prefer trading with exotic currency pairs, while others will stick to major pairs such as the USD/JPY. It is up to you to decide which currency pair will best suit your trading style, but you can be sure that the USD/JPY is a great way to make your first steps in the world of binary options currency trading. Moreover, since this is the second most popular pair, you will easily be able to find plenty of information about it on the Internet and in specialized trading books.