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What Moves Japanese Yen Currency Futures?

usdjpy price study

Japanese Yen Currency Futures are the third most traded in the world, surpassed in volume only by the US dollar and the Euro respectively.

The Yen is recognized by the code JPY and the symbol ¥. As of October 24th, it was down to ¥76.26 to US$1, having gone all the way down to ¥75.76 just a week before.

History of the Japanese Yen Currency Futures

The Yen became the official currency of Japan on May 10 1871 when the Meiji government signed an Act to formally recognize it. By July that year, the citizens were encouraged to use that. Between 1870 and 1873, three sets of coins in silver, gold and copper were introduced.

Over the next century, the Japanese currency underwent several changes including the phasing out of silver, the use of cupronickel, nickel, brass, and the Yen coin. Bank notes were introduced two years after coins were first introduced, and in 1872 Japan had notes ranging from ¥10 to ¥10,000.

Today the smallest note is the ¥1000, with the others being ¥2000, ¥5000 and ¥10,000. Anything below a ¥1000 is a coin; with ¥1, ¥5, ¥10, ¥50, ¥100 and ¥500 in circulation.

usdjpy point and figure chart

Economic Factors Affecting Japanese Yen Exchange Rate

Although Japanese Yen currency futures is the third most traded, and fourth in term of world’s reserve currency, its value is still considered to be low in comparison to the other currencies. “Carry Trade” is one of the factors that has been responsible for this.

The term refers to the practice of borrowing from the Japanese banks to invest in a stronger currency. Carry trade is heavily practiced, and is encouraged in part by the Bank of Japan’s push for economic growth through low interest rates. Demand for the currency on the foreign exchange market hence affects its value.

Daily Japanese Yen Prices (CME)

Why The Japanese Yen Strengthens Or Weakens

The value of the Japanese Yen currency futures are directly influenced by the country’s export/import patterns. At present, Japan exports more goods than it imports due to its trade surplus. The result is the Yen has been able to remain strong in the face of the current economic climate.

Simply put, there is strong foreign demand for the Yen, in order for foreign countries to buy Japanese goods, services or assets. This  is higher than the supply of Yen, that is available to buy goods, services or assets outside of Japan. Since both can fluctuate, the currency can as well.

If this reverses then the Japanese Yen will weaken.

Government Intervention In Japanese Yen Currency Futures

In 1971 the Japanese government intervened in the currency market by signing the Smithsonian Agreement to freeze the JPY/US exchange rates at 308 to 1. International supply and demand led to a discontinuation of the agreement two years later, with both governments agreeing to let the currencies float.

Shortly after, fears that the Yen was strengthening too much again led to government intervention in the same decade. The aim was to keep the Yen at a value that would attract enough foreign investors, and prohibit any negative impact to the country’s export growth.

The JPY still continued to strengthen, despite two oil crisis that weakened it, it started the next decade at ¥280 to US$1. The government has already intervened for this year during the tsunamis, but is threatening to do so again in the face of the Yen’s constant strengthening.

Japanese Yen Currency Futures Active Trading Hours

The Yen is traded in four sessions between 2am and 7pm EST. These are: European session (London) from 2 am to12 pm, U.S. – European overlap from 8 am To 12 pm, European – Asian Overlap from 2 am to 4am and the Asian session (Tokyo) from 7pm to 4am.

It is to be noted that the most active trading hours for the Japanese Yen currency futures is during the Asian session, where the Tokyo stock exchange is open at the same time.

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