USD/JPY trading strategy

The second most liquid currency pair is the USD/JPY. The pair can spend a lot of hours or days idling at a certain level before finally moving in a lightning pace on a new price level. Because of this behavior, the pair requires a lot of patience. However, the pair is fairly easy to setup a trade. If you zoom out of a typical Yen price chart to daily or monthly, you’ll exactly know the current general trend of the currency and where it might head next. Historically, the USD/JPY ranges from an average low of 130 to as high as 85. The Yen typically moves in one direction towards either 130 or 85. The position of the Japanese Yen as the third major international currency and the second largest economy after the United States in terms of GDP makes the USD/JPY another very liquid currency pair.

Japan accounts for more than 40% of its overall economic activity on exports. Aside from a politically sensitive currency, Japan mostly prefer a weaker Yen to boost overseas export sales. Because of this, its central bank, the Bank of Japan (BOJ) takes measures to ensure that Japanese businesses are competitive overseas by taking measures to keep its currency weaker at a certain level. The Japanese Yen serves as a hub for the general direction of other Asian currencies. If the Chinese Yuan is rumored to be revalued by its government, the Japanese Yen mirrors this move by going at the same direction. Japan also has a high savings rate at 15%. The US savings rate is at a negative territory at -1%. This savings percentage tells us that Japanese Banks and asset managers have more funds to invest with. Japanese asset managers also tend to move at the same direction in lockstep. Important Japanese economic data reports are the Bank of Japan interest rate decisions, Tankan report, Industrial production, retail trade, Tokyo area CPI, machine orders and the Domestic Corporate Goods Price Index (CGPI).


The USD/JPY is notorious for sideways movements followed by a major move. This is due to the interest of major Japanese fund managers of the pairs short term trends. For example, if a Japanese fund manager is going for a short position in USD/JPY, the manager would most likely place multiple entry levels above the current market price to take advantage of dips. After all, the general direction of the Yen seems to be very predictable in the long term. Looking at the technical side, the USD/JPY tends to have less false level breaks. Looking back at the unity and discipline mirrored by Japanese fund managers, technical levels on the USD/JPY is more reliable. When the pair breaches a technical level it tends to have fewer pullbacks on the 50% retrace, because of this the pair can be very reliable on major short term price spikes. Japanese technical llevel orders tends to be a round number such as 118.00, 89.50, 100.25 or 96.75 entering positions at these figure provides a better starting ground. Short term spikes between the 20-40 pip range is common for the USD/JPY, so expect a position to be up or down by 40 pips in the first couple of minutes. This is extremely useful for short term traders. Other Japanese Yen crosses like the EUR/JPY tends to affect major price movement for the USD/JPY.

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