Forex Trading : Negotiating the Japanese Yen on the Forex Market :

The Japanese yen, JPY, is the third most traded currency on the foreign exchange market after the USD and the euro. This is due to the success of the USD-JPY pair, the second favorite pair of forex investors.

The yen: the leading currency of carry trading

Since the beginning of 2000, the Central Bank of Japan has been pursuing a 0% policy to tackle inflation, which the country is struggling to recover from, and very weak growth. This monetary policy has strongly impacted the Japanese currency in recent years. Traders have in fact used the yen to finance the purchase of other more remunerative currencies (carry trading). As a reminder, on the foreign exchange market, investors pay the key rate of the currency they sell and receive the currency of the currency they buy. For a long time, until about 2009, carry trading was the main factor influencing the USD-JPY pair. Many central banks subsequently did the same, thus limiting the phenomenon.

The yen: a safe haven

Like the US dollar, the Japanese yen is a safe haven. Like the United States, the country has gone through many economic and financial crises but has always recovered. In addition to this safe haven status that other currencies have, Japan has an additional asset, its debt. With a debt exceeding 225% of GDP, Japan is the most indebted country in the world but its advantage is that this debt is owned more than 90% by Japanese. With this, no obligation to submit to the laws of the financial market regarding its refinancing.

As you can see, the price of the yen depends mainly on its status as a safe haven. Generally, when the world economy is doing well, the Japanese currency is appreciating on the markets. The amplitude of the movements is accentuated by carry trading even if this factor tends to lose its influence. Japan's economy has very little impact on the evolution of the country's currency, it would even be the opposite.