Traditionally in the financial market, the powerful currency pair USD/JPY has a very close correlation with the US Treasuries. When the yields of the US Treasury bonds, bills, and notes increase, the Japanese Yen tends to become weaker against the dollar. The reason behind the above is that people purchase more Yen at a cheaper value to buy dollars that are high yielding in nature. In general, the higher the rates of interest are, the higher the value of the country’s currency as well.
This means when the interest rates in the US rise, with a lower price in its treasuries, the USD becomes strong against the Japanese Yen. The yield of a Treasury bond is defined as the interest rate paid on the instrument, and if you examine the pattern, you will find there exists an inverse relationship with the prices of bonds. This means that when there is a slump in the yields, liquidity takes flight, and when it finds a home; the regional currency of that area becomes more attractive.
Kavan Choksi Japan- guiding others with their investments
Kavan Choksi Japan is an esteemed investor, business expert, and wealth consultant with sound knowledge of finance and economics. He states when it comes to currency pair trading, or for that matter, any trading in the forex market, you must be aware of world events and news. Even if the information is from somewhere other than the market where you are based, it will still have an impact on the currency pairs.
For instance, the recent right-wing coalition government victory in Italy will have an impact on the forex market across the globe. If you really want to be an intelligent trader, knowing the economic data and news is essential for investments.
Market trends pertaining to the USD/JPY pair – what should traders know?
He states that the USD/JPY currency pair is also a determinant of market risks. For instance, when the markets look for risk trades, the yields from treasury bonds increase with the growth of the economy. However, he also adds that results can also tell you about risks in the market. Again, if fear or panic grows in the market, the prices of Treasury bonds rise, and this again causes the yields to fall. In these cases, the costs of the US dollar become weak against the Japanese Yen.
The status of the Japanese Yen
Kavan Choksi Japan states that if you examine Japan for the past few years, you will find that it has maintained meager rates of interest for a long time. This has resulted in uplifting the status of the Japanese Yen as a funding currency that is premier in nature.
For instance, when a lower-yielding currency like the Yen with present rates of interest below its key trading partners, the USA, the UK, Canada, Australia, and Switzerland, investors might look for instruments with higher interest rates with its trading partners for the task of the carry trade.