USD/JPY, the “gopher”
USD/JPY is the abbreviation for the U.S. dollar and Japanese yen cross. Trading this currency pair is also known as trading the “gopher”. The USD/JPY tends to have a positive correlation with the USD/CHF and USD/CAD currency pairs because they all use the U.S. dollar as the base currency.
Since much of the Eastern economy moves according to Japan, the Yen is quite sensitive to factors related to Asian stock exchanges. Because of the interest rate differential between this currency and other major currencies that preponderated for several years, it is also sensitive to any change affecting the so-called “Carry Trade”.
Historical lows and highs… fixed rate or free float rate?
- Fixed Rate: from 1944 to 1971: Following World War II the Yen lost much of its prewar value. To stabilize the Japanese economy, the exchange rate of the yen was fixed at ¥360 per $1 as part of the Bretton Woods system that set an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to gold.
- Free Float Rate: When the Bretton Woods system ended in 1971, the United States unilaterally terminated convertibility of the US dollar to gold. The JPY became undervalued and was allowed to float. Since then, the pair reached its highest price in January 1973 at 301.15¥/USD and its minimum in October 2011 at 72¥/USD.
USD/JPY POLITICAL FORECAST 2017
In her “USDJPY Forecast 2017” published at the end of 2016, Valeria Bednarik states that Kuroda, Governor of the Bank of Japan, will need to work together with Trump: “Japan got a helping hand from the US, as perspectives of upcoming Trump’s policies are boosting growth and inflation, alongside with the three rate hikes foreseen by the US Federal Reserve which fueled dollar’s demand, putting the pair just 200 pips away from the 120.00 threshold. The main reason behind this sharp depreciation of the JPY is that US yields have soared to their highest in nearly two years after US election prompted demand for USD-nominated assets, with the 10-year Treasury yield up to 2.50%, while JGB’s one stands pat close to zero, as per BOJ’s policy.
About the Central Bank of Japan, she explains that “in spite of BOJ’s policies not working, the Central Bank has the chance to breath in 2017, although it will mostly depend on Mr. Trump and his promises of boosting US growth. The BOJ, however, will probably need to maintain monetary easing all through 2017, to reach its target of keeping inflation stable above 2%.”
MOST INFLUENTIAL ORGANIZATIONS FOR USD/JPY
The organizations that most impact the USD/JPY are the Federal Reserve of the United States and the Bank of Japan (BoJ). The interest rate differential between the Fed and the BoJ will affect the value of these currencies when compared to each other. For example, when the Fed intervenes in open market activities to make the USD stronger, the value of the USD/JPY cross could increase, due to a strengthening of the U.S. dollar when compared to the Japanese yen.
In Japan, deflation has been a persistent threat for many years, and the BOJ has pursued a policy of very low rates in the hopes of stimulating demand and economic growth; at various points in the 2000s, real rates in Japan were actually slightly negative.
The US Government is as well an institution of great importance for this pair: events as administration statements, new laws and regulations or fiscal policy can increase or decrease the value of the US Dollar and the currencies traded against it. The same happens of course for the Japanese Government, in particular, all the speeches of the Primer Minister and its so-called “Abenomics” economic policies which are based upon “three arrows” of fiscal stimulus, monetary easing and structural reforms.
MOST INFLUENTIAL CURRENCIES FOR USD/JPY
The USD/JPY pair can also be impacted by other currencies, in particular the Euro (for being a prominent commercial partner) and the Chinese Yuan Renminbi (for being the other main Asian currency).This group also includes the following currency pairs: EUR/USD,GBP/USD, AUD/USD, USD/CHF, NZD/USD, USD/CAD, GBP/JPY and EUR/JPY