Fusion Markets

Extremely liquid and highly traded, the USD/JPY pairing is one of the major pairs of the foreign exchange market, being the second most traded pair by volume behind EUR/USD. Used to denote how much 1 US Dollar (the base currency) converts to Japanese Yen (the quote currency), the volatility, reserve-held status of both currencies, and liquidity have made it a popular trading pair among Forex Traders.

Historically the Japanese Yen has fared well against the US Dollar in times of market turmoil, as many investors view the Yen as a safe-haven currency. This was most apparent during the Global Financial Crisis (GFC) in 2008 and post GFC market rebound.

USD/JPY from 2005-2015

What factors affect USD/JPY?

The USD/JPY pair is influenced by both the US and Japan’s monetary policies, in particular those related to treasuries and interest rates.

Differences in policies and interest rate decisions by the Federal Reserve (FED) and the Bank of Japan (BOJ) are often one of the key drivers of the pair, and have in the past correlated closely with USD/JPY movements.

These differences have further been compounded with Japan’s introduction of Qualitative and Quantitative Easing (QQE) with Yield Curve Control (YCC) in 2016.

Historically, when US treasury prices rise, the USD/JPY pair weakens. Similarly, when US treasuries fall, the US dollar strengthens against the Yen.

With bond yields being a key driver, factors that affect bond yields such as interest rate expectations and inflation can significantly affect the pair. For example, as rising interest rates lead to higher bond yields, it also subsequently leads to the USD/JPY strengthening.

Therefore, when the Fed or BOJ intervenes to control inflation, deflation or stagflation with changes in interest rates it affects USD/JPY.

While treasuries and interest rates are often seen as one of the core drivers of USD/JPY, similar to other Forex markets, a range of other economic factors also play a role in the movement of the pair.

Some other economic factors that have played a role in the past are: Japan’s import/export balance, natural disasters, GDP, CPI, unemployment rate and wage growth. Although these do not influence the pair as much as US treasuries and interest rates, they can create significant price movements depending on how unexpected the event is.

For example, following the 2011 Tsunami in Japan, the Yen surged against the US Dollar with pundits expecting that Japanese investors would have to repatriate to cover the cost of the damages.

USD/JPY March 2011

Why is the Yen weakening and USD/JPY soaring?

As mentioned above, interest rates and monetary policy are some of the biggest drivers of the pair. This was further magnified during the COVID-19 outbreak and the subsequent Quantitative Easing (QE) policies of countries worldwide with stimulus schemes issued by many governments including the US and Japan.

In the case of the US this was one of the major factors to its rising inflation. As such, the US has begun implementing interest rate hikes, and is expected to more aggressively raise interest rates throughout 2022 and 2023.

In comparison, the BOJ has opted to not introduce any interest rate hikes in the short term and instead plans to continue with their stimulus and subsidies packages. Japan’s history with deflation and negative rates makes this position understandable, but the weakening Yen has made Haruhiko Kuroda, the Governor of the BOJ, express concerns.

Japan’s plans to continue with their proposed stimulus has led to the Yen weakening not only against the US Dollar but other foreign currencies where central banks plan to increase interest rates, such as the UK and GBP.

It will be important to keep an eye on USD/JPY as the monetary policies of the FED and BOJ continue to diverge.

How do I trade the USD/JPY pair?

As Treasury bonds tend to affect the pair, looking at yields across different maturities can be a good basis to begin your analysis. This can help forecast the future of the pair, and overall provide a solid fundamentals-based foundation for other analysis.

Another useful indicator, as USD/JPY can represent market confidence, is the S&P 500, as it may provide early warning signs of overall market reversals.

In terms of when to trade the pair, 12:00 to 15:00 GMT (when the Tokyo market isn’t open) has been one of the most volatile and best times to trade the pair. Even though the Tokyo Market isn’t open yet, this period tends to have high volatility as it is when the London and New York markets overlap.

In terms of when not to trade the pair, you want to avoid “quiet” times in the market such as 21:00-24:00 GMT when the New York market is closed, London is sleeping, and the Tokyo market is yet to open. Similarly, 03:00-5:00 GMT is considered another quiet period as the Tokyo market is nearing the end of the day, and the London and New York markets are not open.

That’s right, we have more than doubled our US Equity product line to 110 US equities. We want to ensure that our traders have the best costs, spreads and range of products, so it’s important to us that the most actively traded equities on the US market are available at Fusion, with no commission.

We now offer all equities in the NASDAQ 100 and more.

You’ll be able to find the entire list of newly added US Share CFDs in the table at the bottom of this page. For a complete list of all our trading products visit our trading product page.

When you open your MetaTrader 5 platform and log into your Fusion account, you should already be able to access the entire range of new US Equities. If you don’t see all products, you need to right click in the “symbols” tab of the “market watch” and select “show all”.

Trading of US Equities on Fusion Markets follows the normal trading times of the US Equities market. This means trading hours are between 9:30 - 14:00 New York time, or for Australians, that translates to 01:30 - 08:00 Australian Eastern Standard Time (AEDT).

No. It’s important to remember this is a Contract for Difference (CFD) and not a share. In a CFD you don’t own the underlying stock, but are instead trading on the underlying asset price.

We use CFDs as they are one the best financial products for traders to capitalise on the price action of an asset via leverage. This form of derivative gives traders the best opportunities to take advantage of movements whether up or down. If you believe an equity is overvalued, a CFD is an excellent way to enter a position that will profit if the equity price falls. Additionally, with a CFD you are also able to increase your position size with leverage.

We are available around the clock, so if you have any further questions you can check out our FAQ page (most questions are answered here) or visit our contact page to get more information.

You’ll often hear in the media or from professional market participants that retail clients “shouldn’t try to compete with the professionals”.

Ignoring the condescension here for a moment (“the adults will take it from here”) it is my firm belief after ten years of trading that this isn’t always true.

Sure, any beginner will find it challenging at the beginning to trade successfully, but you can’t expect to play like Roger Federer after one match of tennis, can you?

Charlie Ellis, the man who oversaw the $24 billion Yale endowment fund in the US once, said “watch a pro football game and it's obvious the guys on the field are faster, stronger and more willing to bear and inflict more pain than you are. Surely you would say ‘I don’t want to play against those guys.”

But Charlie is wrong in a few ways.

Yes, professional traders and institutions have many advantages at their fingertips. They get news faster than you do. Their trades go more quickly than yours. They pay far less than you do. You get the picture.

But it’s not all doom and gloom. Here are a few reasons why:

Time

No, not in the sense that you have more actual time to trade than them.

You probably don’t.

You’ve probably got a full-time job.

You might have kids or ailing parents to look after.

Trading is like a side hustle for you.

BUT your time horizon is different from theirs.

You can hold a trade for days or weeks without a Manager yelling at you “Why the hell are you selling euros, you dummy… the market is going up”. You might enter a trade on gold and plan to hold it for months.

A professional fund manager or trader might not have that luxury due to quarterly reviews, investor pressure or whatever else.

Professional Risk

Professional or Career risk is one I picked up from famed value investor, Howard Marks. In his book “The Most Important Thing” (one of my favourite investing/trading books of all time – buy it!) he talks about how in the GFC there was so much pressure on investors to not look silly by calling the bottom of the market or “catching a falling knife”. No one wanted to be the guy in the office who was buying Citibank at $1 per share!

Similar to my time point above, you don’t have that problem.

You don’t have your colleagues questioning you why you’ve bought or sold some instrument. Or a boss that is screaming at you and putting you into an emotionally defensive position trying to justify your actions.

Will you lose your job for selling USDJPY? No.

Does a professional trader get fired for always missing targets or taking on too much risk? Yes.

You need to work out what you’re happy with in your trading goals and go for them.

It’s entirely up to you what you define as success. The Pros don’t have that luxury.

Benchmarks

Which brings me to my next point.

Most professional traders and investors have a benchmark. If you’re a fund manager you’ll send out your monthly report to your investors saying “here is how much we made/lost.. and here is what the benchmark did”.

If you miss that benchmark, get ready for investor withdrawals. As a professional, you’re judged on your performance. Simple as that. The more investors leave. The more you have to sell. The more you sell, the worse your performance!

What’s your benchmark? You get to set your own. Happy with 1% a month? Awesome.

What about $100 a month so you can buy your wife dinner? Happy days.

Or $5,000 a month so you can pay off your mortgage? Even better.

It comes back to autonomy and your desires. No one else decides that but you.

Fees and Expenses

Believe it or not, you do have a HUGE advantage here, especially if you’re trading with a low-cost broker (hello, Fusion!)

If you’re a professional investor/manager, you’ll often have a significant research team, a very fancy office with lovely views, staff bonuses, visits to various investment conferences etc.

Not to mention all that travel to see your clients and investors!

Putting that aside for a moment, if you choose a good broker, you’ll pay zero spread and a small commission that is not far off what the pros trade. They’ve got $100,000,000 though, you’ve got one thousand!

So, ignore the haters telling you to stay out of the market because its only for the big boys.

However, let me be clear.

I’m not saying trading is easy and (unlike some) and that you can soon retire on the beach. It’s not. Trading FX, in particular, is a highly challenging exercise.

But don’t just assume because there are so many professionals in this that you can’t succeed or you’ll never be good enough. You have to play your own game, and for me, that’s the best part. I set my own rules as to what I consider success. That’s something the pros will never get.  

If you’d like to start trading and use your advantages to outperform the pros, Sign Up to Fusion Markets and get your feet wet with our demo account. When you're ready start a live account to start making real-time trades.

We are excited to launch Soft commodities on our MT4/MT5 platform now to help you succeed in the markets.