There are various economic factors which can influence fluctuations in valuations for the Japanese yen. Forex traders looking to trade the yen should have a comprehensive understanding of the factors which influence price movements in the Japanese currency. Interest rate expectations and commodity prices are important economic drivers of the Japanese yen.
Bank of Japan
The Bank of Japan (BOJ) was established in 1882 and functions as Japan’s central bank. The BOJ makes monetary policy decisions for the second largest economy in the world. The BOJ’s Monetary Policy Board meets between 12 and 14 times annually. The Board consists of nine policy members led by the BOJ’s governor. Two of the members are appointed deputy governors.
Carry Trade
Due to maintaining a consistently lower interest rate compared to other currencies, the Japanese yen is commonly utilized in carry trade strategies. This means traders are shorting the yen against other higher-yielding currencies such as the Australian and New Zealand dollars. Many times this can force traders to take a longer-term technical perspective.
Oil Prices
Japan imports almost all of the oil it needs. This means that significant surges in oil prices results in lower trade balances which is seen as bearish for the Japanese yen. On the other hand, when prices fall it is beneficial for Japan’s economy and trade balance and is therefore seen as bullish for Japan’s currency.
Safe Haven Asset
The Japanese yen has historically been seen by traders as a safe haven asset. During times of uncertainty in the markets, traders have tended to flock to the Japanese yen, causing bullish surges for the currency. However, this is not always the case in every single instance of uncertainty or crisis.
On the other hand, there are many other factors which effect the fluctuations of the Japanese yen. Of course, just like with any currency important economic data releases will have significant influence on the currency. Additionally, technical analysis can be informative when making trading decisions involving the Japanese yen or any other currency.
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Sources:
http://www.investopedia.com/walkthrough/forex/intermediate/level5/jpy.aspx
http://www.investorwords.com/tips/759/japanese-yen-and-oil-prices.html
