The Japanese Yen (JPY)

Overview:

As the third largest economy in the world, Japan is a respected power in the global arena. In fact, it is the second largest single economy in the world, second only to the United States. Japan is also one of the world's largest exporters. Manufacturing is one of its largest sectors, making up nearly 21 percent of its $4.5 trillion GDP. Japan's largest sector is services accounting for 68 percent of the GDP.

Japan carries a large trade surplus from the enormous amount of its exports. This creates a large demand for the Japanese Yen.

Trade Matters:

Exports:

Japan relies on exports for the growth of its economy. The stability of its export markets directly affects the demand for the Yen. A strong Yen will reduce exports. A weak Yen will boost exports and the demand for the currency.

Japan has five major export markets:

1. The United States
2. China
3. South Korea
4. Taiwan
5. Hong Kong

Imports:

A strong Yen will boost imports because foreign goods will be cheaper for Yen-holders to purchase. A weak Yen will diminish imports because foreign goods will become too expensive.

Japan has five major import markets:

1. China
2. United States
3. Australia
4. South Korea
5. Taiwan

Central Bank Information:

Japan's central bank is the Bank of Japan (BoJ). The Bank of Japan is a very active participant in the Forex market and is sensitive to the importance of the Yen to the Japanese economy. As a major exporter, the strength of the Yen is critical to Japanese economy and the BoJ will intervene to ensure that the currency remains at a safe level to encourage exports.

The Bank of Japan meets periodically to decide on interest rates, which are very low in Japan. These meetings are highly publicized. The Yen and other Asian currencies like the Chinese Yuan tend to become volatile in anticipation of a Bank of Japan meeting.

Important Characteristics:

The following characteristics are important for traders to know about the JPY as they affect the demand for the currency:

• Japan has the largest GDP in Asia and the lowest interest rates of all industrialized countries.
• Japan serves as a gauge for broader Asian strenght or weakness.
• JPY crosses become very active toward the end of the fiscal year (March 31st).
• The JPY is most active during the US session.
• The JPY is the most popular currency sold or borrowed in the carry trade. Carry traders use the GBP/JPY, AUD/JPY, NZD/JPY, and the USD/JPY.

Important Economic Indicators: p]Important economic indicators in the UK that directly affect the value of the JPY are (in order of importance):

• Gross Domestic Product (GDP)
• Tankan Survey
• Balance of Payments
• Industrial Production
• Employment

Since the US is the largest export destination for Japanese products, the JPY is sensitive to US economic data.

Announcments by the ECB are generally supportive of the Pound and coincide with Bank of England decisions.