USD/JPY Trading Tutorial

Learn Forex trading. Discover how to profit from trading USD to JPY. This guide provides everything you need to know about the USD and JPY trade.

The Covid-19 pandemic has brought global market volatility that has not been seen before. Countries are struggling to cope with the new economic trend.

For forex traders, there has never been a better time to trade than today. The market has not been more lucrative. The wild swings in the prices offer greater profit opportunities. 

The USD/JPY is popular among traders, old and new. It has to do with its high liquidity and low-bid spreads.

Let us look at this guide and learn what affects USD/JPY and how to trade it.

Knowing the USD/JPY

This currency pair stands for the exchange rate between US Dollar and the Japanese yen. 

The US Dollar is the base currency. And the quote currency is the Japanese Yen. The quote determines how much money is required to buy the base.

For example, Id the USDJPY is trading at 100, you will need 100 Japanese Yen to purchase 1 US Dollar. 

Brief background

Before we go any further, let us first take a look at a brief history of Yen and US Dollars.

Japanese Yen

Before the Yen, Japan had a disorganized money system. 

The Japanese used Hansatsu, which was issued by the feudal fiefs. The Hinatsu currency is composed of varying and inconsistent denominations. 

During the Meiji period, the government sought to reform its monetary system. 

The Yen was introduced into circulation in 1871. Months later, the government made it the country’s official currency.

The new currency followed the European Decimal Monetary System. 

Initially, banks were allowed to print money. But after several years, the Bank of Japan was constructed. It held the sole authority to print the Yen and issue monetary policies. 

United States Dollar

Even in the 1600s, the US is already printing and using paper currencies. But it was not until the 1700s that the 2-dollar paper bill was printed. 

After several years, the government adopted the dollar sign that we know today. It was taken from the Spanish American Peso sign. 

The first US dollar notes were green and are known as the greenbacks.

In 1994, the Bretton Woods Agreement was drafted by the Allied countries. They made US Dollar the global reserve currency. 

Why is trading USD / JPY ideal, and why not?

Let us see the benefits and disadvantages of trading USD to JPY.  

Pros

More liquidity

The USD/JPY is the second currency pair around the world. It means that there is a high volume of trades and a high number of traders. 

The high liquidity creates profit opportunities.

One of the reasons why USD/JPY has high liquidity is because both are safe haven currencies.

Safe haven currencies

These are currency pairs that would survive global disasters. These are the ones that the world would turn to in case of economic mayhem. 

They will either retain their value or increase during trying times. 

Safe haven currencies include the Japanese Yen, Swiss Franc, and the US Dollar. 

Predictability

Secondly, the USDJPY trade has a positive association with the Japanese market. 

It moves in the same direction as the Japanese market. If the Japanese market economy rises, the rates also rise. If it falls, the rate also falls. 

But because the Japanese market is somewhat stable, it leads to high predictability. 

Low-bid Spreads

When we talk of spread, we are referring to the difference between the buying and selling price of a currency. 

The more people who are actively trading, the higher the trading volume becomes. 

As the volume of trade increases, so does the liquidity. It drives down the bid spreads.

Low bid spread leads to low volatility. If the market is less volatile, there are lesser risks. 

It is why more forex traders prefer to trade when the bid spreads are low. 

Open trading sources

Forex trading has never been easier.

With recent breakthroughs in technology, forex resources are made more accessible. The internet is full of useful information. 

Forex sites can give you:

  • updated market reviews 
  • USD JPY live chart
  • hourly forecasts on each currency pair and the market in general
  • current news that can affect the current market trend
  • access to past charts
  • access to indicators 

Beginner-friendly

All the factors cited above make USD/JPY easier for beginners to handle.

The relatively smooth trend makes it straightforward. 

Cons

Though the benefits are enticing, there are still risks in trading USD/JPY. 

Unexpected Volatility

While we can measure volatility, it is not foolproof. This factor is highly unpredictable. 

Mostly, the USD/JPY has low volatility. But this is not a guarantee that it will stay like that all the time.

Many factors can impact the market and cause sudden changes.

And while volatility will present opportunities, it will also carry more risks.

One unpredictable factor is the weather and location of Japan. It sits within the Pacific Ring of Fire.  

It is prone to earthquakes, volcanic eruptions, tropical cyclones, and tsunamis. These natural occurrences are out of our control and can happen unexpectedly. 

When it comes to volatility, traders must be alert for any signals. Also, having a solid strategy and risk management plan will go a long way. 

Government Interventions

Unlike the US Federal Reserve, the Bank of Japan is more inclined to intervene.

The Bank of Japan is closely monitoring its economic performance. If there are perceive threats, they are not timid in making actions. 

Make sure to keep an eye on any political and economic developments in both countries. 

Trading on Leverage

It is a risk in trading all currency pairs, not just in USD/JPY.

While leverage trading allows you to increase possible profits, it also does the reverse. It increases your potential loss. 

The way around this is not to trade more than what is in your account deposit. If the worst-case scenario happens, you can cover your losses. 

Trading against Computers

There is no perfect formula or solution that can crack the Foreign Exchange Trade.

But math helps in knowing the probabilities. It helps us in decision-making. 

The problem is, bots are entering the trade. They use complicated algorithms to analyze the market data at an impressive speed.

It creates an unleveled playing, or should we say trading field.  

When is the ideal time to trade USD/JPY?

Like other currency pairs, the ideal time to trade USD/JPY is when there is a lot of activity.

The up and down movement of the market opens up opportunities for higher gain.  

Trading happens throughout the day. The trick is to find the peak hours and enter the market. 

The closing and opening time of banks around the world creates fluxes in volume in the forex market.

But since the United States and Japan are on opposites sides of the world, trading volumes are fairly consistent all day. 

Even so, based on past data, the peak hours for USD/JPY are from 1200 to 1500 GMT.

Traders should keep an eye on the liquidity rate in these hours and take advantage if it peaks. 

Needless to say, you should monitor the volatility rate.

How to trade USD/JPY through Markets.com

This portion teaches beginners how to trade USD/JPY using markets.com.

Markets.com is an excellent forex broker that was founded in 2008. It offers low bid spreads and high-tech service platforms.

The great thing about markets.com is that they offer VIP service. They give their clients Account Relationship Managers and analyst teams that are available for a consult anytime.

The website also features a knowledge center. This section includes trading tips and FAQs. They also post live webinars and video tutorials and keeps you updated on vital economic events.

This broker allows you to trade major to exotic pairs, including AUD/JPY.

Creating an account

  • Go to markets.com and click on the create account on the top right of their page.
  • Fill out the needed information.
  • Submit a photograph or scanned copy of the necessary documents. The details and photo should be clear. 
    • Proof of identity – they prefer passport but you can also use national ID or driver’s license in lieu of it.
    • Proof of residence – you can use utility bills, bank or credit statements and municipal statement. 
  • You can open a demo account or live account or both

Демо-счет

Traders can open demo accounts with no expiration. 

It is a good thing for novices. It allows them to practice without losing their money.

Live account

Live trading accounts require a minimum deposit of 100 Dollars, Euros, or Pounds. (The amount is the same regardless of the currency.)

If you are interested, you can sign up at and create an account at markets.com.

Using the Platform

Markets.com uses several platforms but we’ll be guiding you through the usage of MetaTrader4. It was created in 2005 and is one of the best trading service platforms out there.

You can download the MetaTrader4 app from market.com under the Platforms tab in the upper right corner. 

After you have downloaded and installed it, open it and let’s start trading.

Placing an order

  • Look at the tool bar and click on Tools.
  • You will have 5 options in the drop-down menu. Click on new order.
  • A window will pop up and you will need to fill it up.
    • Choose USD/JPY in the symbol drop down menu. 
    • Put in the volume of trades you want.
    • Put the pips you think are acceptable for the stop loss and take profit. 

Stop loss

It is the price at which your order will automatically close to minimize loss once it hits the price you indicated.

Take profit

It is the price at which the order will close once it reaches your desired profit. 

  • Leave any comment that might be helpful for future trades.
  • Choose between instant order or pending order. The pending order will let you set parameters before the order will be confirmed.

Tracking you order

You can view your order by pressing control plus T. You will be able to see the details of your order including the current price, time and profit.

If you want to terminate it, you can simply click on the x mark at the far-right corner.

If you want to edit the details, just right click on the order and select modify.

Drawing on the chart

Symbols, line and markers can be helpful in analyzing the chart and marking and noting important details. 

You can draw lines, equidistant channels, Fibonacci levels, texts, arrows and labels. 

Using technical indicators

There are various technical indicators that traders use to analyze the market. There is no best indicator. They can be applied individually or combined with another. 

It would depend on the trader, the currency and other factors. 

Check out the strategies below to learn some of them.

Strategies in trading USD/JPY

Even if the USD/JPY is easier and safer to trade than others, there are still some challenges. 

Let us look at some helpful tips to boost your trading strategies. 

Track important market factors

The current value of Percentage in Point (pip)

Pip and currency exchange rates have a close relationship.

  • If the currency exchange of USD/JPY increases, the pip value of USD will decrease.
  • If the currency exchange decreases, the pip value of USD will increase.

What is a pip?

PIP stands for price interest in point or percentage in point. It is the smallest unit that measures the change of rate of a currency pair.

It indicates the move in the quote currency.

To better understand, let us illustrate.

Say the USD/JPY is trading at 90.01 and moves to 90.02.

The number after the decimal point is the pip. In this case, the rate moved one pip higher and is now at 0.02.  

How do you get the pip value?

Here is a sample problem for us to solve.

If the USD/JPY is trading at 90.01, what is the pip value if you use 1000-lot?

Let us do this step by step.

Here is the given:

  • Pip = 0.01 or 1/90 of a yen
  • Lot = 1000

Multiply the pip with the lot.

0.01 Yen x 1000 = 10 Yen

We need to get the value of 10 Yen in US Dollars. To do this, we multiply 10 yen with the current exchange rate.

190  x 10 Yen = $0.11111 or $0.11

The value of the pip in USD/JPY of a 1000-micro lot is $0.11.

Chosen Lot size 

Lot varies depending on the brokers. The standard for a currency pair is 100k. It is rather large, but some brokers offer micro lots with a minimum of 1k lot.

For retail traders, it may still be a lot? What if you wanted to start with trading with only $500? Is it possible?

Yes. It is where leverage trading comes in.

What is leverage trading?

It is a form of borrowing. It allows traders to increase the amount they trade while paying less than the total amount.

Leverage varies from broker to broker. Usually, they offer 1:100 to 1:1000.

In the United States leveraging is limited by the government to 1:50.

To further illustrate, let us look at this example.

Suppose you have a five-hundred-dollar account and choose to buy USD/JYP. You want to trade at a 1k lot, but you cannot afford it. So, you apply for leverage of 1:100.

With this leverage, you will only need to $10. Convenient, right?

Correlated currencies

Traders should know the correlation between currency pairs. It will avoid potential losses.

The relation can either be positive or negative.

Positive correlation

These pairs move to follow the same course. 

If one currency pair moves up, the correlated pairs will also move up.   

These currencies have the highest positive correlation with USD/JPY based on the latest data.

Currency PairsRate of Correlation
US Dollars-Turkish Lira77.9%
US Dollars-Hungarian Forint74.9%
US Dollars-Swiss Franc73.9%

Negative correlation

Currency pairs with positive correlations move inversely.

If one currency pair moves up, the correlated pairs will move down.        

These currencies have the highest negative correlation with USD/JPY based on the latest data.

Currency PairsRate of Correlation
British Pound-Canadian Dollars-79.1%
Euro-US Dollars-74.2%
Euro-Singapore Dollar-69.1%

Correlation to Gold

The USD/JPY can be put in contrast with the current price of gold. Although it is a legal tender of any country, gold is one of the oldest monetary vehicles.

It even has a currency code: XAU.  

The Japanese Yen maintains a positive correlation to gold. So, if the Yen receives higher demands, the exchange rate between USD and gold will decrease. 

Correlated Equity Indices

Correlation with global and local equities can affect currency exchange rates.

The equity index collates market statistics and uses it to indicate trends in market prices. An equity index can give insight into the direction of the currency prices.

What are the factors that impact the USD/JPY exchange?

Like other pairs, the USD/JPY is sensitive to geopolitical, economic, and social changes. A successful trader needs to be aware of these things. Vigilance will reduce the risks of losses and increase potential gains. 

Economic Performance

The economy is the major driving force behind a currency exchange rate.

The strength of each of the countries’ economies has inverse effects on the exchange rate. 

  • If the economy of Japan improves, the rate of exchange against US Dollars will decrease.
  • If the economy of the US will advance, the rate against the Japanese Yen will increase. 

What are Economic indicators?

These are elements of the economy that are used to measure the economic performance of a country.

It includes:

  • Current gross domestic product
  • Consumer price index
  • Decision relating to interest rate
  • Rate of unemployment
  • Rate of wage growth
  • The volume of retail sales

These are important indicators, but they are not the only things that affect the currency rate.

The volume of export against import

The difference in the volume of imports and export will move the exchange rate up or down.

  • If the volume of goods exported by Japan or the US is higher than the number of goods it imports, the value of its currency will increase.

Trading relations

Maintaining positive relationships with trading partners also affects the currency rates. 

It is especially true for Japan since its economy is largely reliant on the export of goods. 

Let us consider Japan’s relationship with China, Korea, and the US. These are Japan’s top three trading partners. It exports the most goods to these countries.

If there is a healthy relationship between them, there is a great chance that Japan’s economy will grow.

The growth will increase its currency value. 

The pace of Economic Growth

Different countries grow at different paces.

Japan and the United Stakes are some of the leading countries in the world economy. But there is a huge difference in the pace of their growth.

The United States is growing much quicker than the Japanese economy. It means that the value of JPY against USD is decreasing. 

If Japan will experience an economic boost, it will move the currency rate up. 

Natural Events

Natural calamities are one of the most random factors that can cause fluxes in forex.

When calamities hit countries, it drastically pulls down their economy.

Japan is more likely to meet natural disasters. Its geographic location exposes it to all-year typhoons, tsunamis, and earthquakes. 

In 2011, Japan experienced one of the worst natural disasters in its history. 

The triple disaster claimed the lives of thousands. The damage reaches an estimate of $360 billion.

This event caused a major drawback in Japan’s economy.

Bank policies and interventions

The central banks work to manage their country’s monetary system and economy. Their policies and mandates have a big impact on the exchange rate.

If there is inflation, the banks increase the interest rates. This will lower the volume of money borrowing and slow down the economy. 

Higher interest rates are more enticing to foreign investors. More foreign investors increase demand.

It raises the value of the currency. 

Other actions that can influence the exchange rate are quantitative easing and growth forecasts. 

Correlation

Correlation describes the relationship of a currency pair with others. Correlation can determine the course of a move. 

If a correlated currency increases, the value of exchange for USD/JPY will also increase.

Parting words

The USD/JPY is beginner-friendly. It is by far easier and safer to trade than minor and exotic currency pairs.

But easy and safe do not mean risk-free. Like all currency pairs, it carries some risks.

The key is being prepared.

Witzeltrading.com

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