The USD/JPY price fluctuations are relatively easier to forecast than other forex pairs due to their liquidity and high correlation with the Japanese commodities market. Moreover, brokers offer tight spreads to trade USD/JPY, making it an appealing choice for new and seasoned professionals. In this article, we’ll learn why the USD/JPY pair is so popular and the different ways to invest in USD/JPY. We’ll also list the pros and cons of trading it, besides reviewing the risks associated with trading the Ninja.
Moving forward, you’ll find an explanation of what factors you must consider when choosing the best broker to trade USD/JPY, such as reputation, regulation, trading fees, customer support, etc. We’ll also list different trading platforms you may use to invest with USD/JPY brokers. Lastly, we’ll discuss why these brokers need to be regulated and what users think of signing up with these brokers on platforms like Reddit and Quora.
Why is USD/JPY so Popular?
While the U.S. Dollar (USD) is most countries’ prime medium of exchange, huge global financial transactions involve the USD/JPY pair. The United States is a major centre for trading USD/JPY because of the relative stability of the exchange rate. While the USD/JPY’s market performance over the previous several years may be sourced from the exchange rate’s remarkable steadiness, the market liquidity and low spreads also seem to have contributed to its widespread appeal. Moreover, the fact that large financial organisations also prefer to trade the USD/JPY plays a considerable part in the dollar’s strength and popularity of the USD/JPY pair.
Ways to Invest in USD/JPY
Traders have diverse investment opportunities when dealing with the USD/JPY pair. Its high liquidity makes it ideal for day trading, although its potential for long-term price growth also merits consideration. Another strategy for trading this pair is to buy USD/JPY and hold it long-term. Here, we’ll take a closer look at each individual investing method.
Day Trading the USD/JPY in real-time appeals to many people for many reasons. Whether it’s about the pair’s high volatility or low spreads or the predictability and increased volume of daily transactions, all factors seem favourable for day traders. That, coupled with working with the best day trading brokers will likely breed success.
While there are always volatile periods, the pair maintains a daily volume throughout the day. However, it’s generally agreed that 12:00-15:00 GMT is prime time for day trading the USD/JPY pair. London and New York trading sessions see extreme activity for the pair during this time.
Moreover, diverse trading vehicles such as futures, options, and ETFs make the pair a hot choice for day trading.
Long-term trading involves sticking to a basic pattern that comprises uptrends, downtrends, and sideways trends. For instance, if a trader anticipates an upswing to last longer than a month, he is more likely to attempt a long-term transaction to maximise his profit potential.
Buy and Hold
The “buy and hold” strategy is typically common with stock market investors, who anticipate that stock prices will rise over time to reflect the increased performance of the underlying company. However, since psychological elements have a considerably larger impact on currency pair movement, this strategy is rarely used in the forex market. But, it is an available method to invest in the USD/JPY pair.
Pros and Cons of Trading USD/JPY
- High Liquidity
- Low Spreads
- Diversified Investment Vehicles
- Vulnerable to BoJ intervention
Risk Associated with Trading USD/JPY
Trading the USD/JPY pair is appealing for a variety of reasons. However, traders should also be aware of the following associated risks.
Volatility has advantages but can also cause unexpected swings in price. If investors aren’t careful, a profitable investment might turn into a devastating loss. Japan’s isolated economy is particularly vulnerable to external shocks like natural disasters. Therefore, a high degree of danger is associated with the USD/JPY volatility.
The USD/JPY pair is also known for its occasional false signals and breakouts, making it somewhat ambiguous. While the USD/JPY is a famous pair among experienced traders for its volatility, uncertain trends source a greater risk to novice traders. Experts believe that newbies may do well to diversify their focus.
Borrowing money from brokers to enhance your market exposure lets you make the most of the trading opportunities, but it also magnifies the risk of loss. As a result, the USD/JPY pair is particularly risky when leveraged through a high margin.
These days, trading algorithms provide a severe obstacle for human traders. These intelligent robots can now generate predictions using annual charts and current decreases. On the other hand, human traders still use the old fashion drawing tools to determine market trends, which still needs to compete with the accuracy of automated robots.
Factors to Consider when Choosing Your USD/JPY Brokers
Faith in one’s forex broker frees traders to focus entirely on honing their trading techniques. However, the forex market is full of good and scam brokers, making it difficult for traders to find the best broker to trade USD/JPY. Below are some factors you must consider while searching for legitimate USD/JPY brokers.
The reliability of a forex broker should be your priority when making a choice, and this mostly comes from the broker’s regulation. Highly trusted brokers are likely to hold regulations at both domestic and international levels. For example, eToro is a multi-regulated brokerage firm authorised by Cyprus Securities and Exchange Commission (CySEC) and the Financial Conduct Authority (FCA-UK). The same is the case with Capital.com.
Therefore, before choosing USD/JPY brokers, you should check if they are authorised to do business by a reputable regulatory body such as the NFA, FCA, ASIC, etc. Even while there is no guarantee that your money will be secure if your brokers violate the code of ethics, you reserve the right to take legal action against them.
Regarding their dealings with clients, USD/JPY brokers with high reputations among investors are likely to maintain an unbiased and open approach. While customer reviews are available on popular online forums like Reddit and Quora, there are several independent review sites, such as Trustpilot, Forexpeacearmy, BrokersView etc., where you may learn more about the company’s reputation.
Commission and Fees
Like all other service providers, brokers seek compensation through commissions and fees. They set up different fee structures so traders can select the account type most suitable for their trading style. For example, some accounts will have a commission on trading assets like stocks, while others might only require you to pay an account administration fee or swap charges on positions held overnight. Therefore, you should research and compare USD/JPY brokers’ fee structures to see how they generate revenue and select the cheapest one.
This disparity between the purchase and sell prices on an underlying asset is known as the spread. Nearly all brokers boast about their “low spreads”. However, you find lower spreads with only a small number of brokers. It is also worth mentioning that brokers employ a variable spread charging policy. While some USD/JPY brokers charge fixed spreads, others keep them fluctuating depending on the market conditions. Therefore, always carefully check the spreads offered by your prospective broker to assess whether or not they are market competitive and proceed with those offering low USD/JPY spreads.
Leverage entails borrowing funds from your broker to open a sizable position with limited capital investment. The maximum leverage in some regions like Europe, Australia, and the U.K. is governed by local regulators and is uniform (1:30) across all brokers. However, that’s not the case with countries having no such constraints. Clients may be allowed to use maximum leverage of up to 1:1000. While leverage enhances your market exposure and profit-making potential, it’s vital to keep in mind that the risk of loss also increases in proportion to the amount of leverage employed. If you find USD/JPY leverage offered by your broker is too high, proceed with it following due diligence. It could be a scam broker looking to get your account wiped off as soon as possible.
USD/JPY Platforms For Trading
While some USD/JPY brokers allow trading USD/JPY on MT4, MT5, or TradingView, others offer custom-built trading terminals alongside other trading tools and resources. For instance, a trading programme that “copies” the trades of successful traders to generate profits for its users. Market research, insights, and sentiment tools, like PsyQuation, etc, also fall under the list of effective tools required for purposeful trading. However, a user-friendly interface is a prerequisite for a good USD/JPY platform. A complex trading interface is unlikely to bring you any good and might affect your performance.
Debit Cards, Credit cards, E-wallets (Skrill, Neteller, PayPal) and bank transfers are just a few ways clients add funds to their accounts with USD/JPY brokers. Concerning deposits and withdrawals, brokers have different charging policies. While some brokers only charge you at the time of withdrawals, others might offer them completely free. Always check the related costs for each payment option. You can also compare different brokers to select the one offering the cheapest payment options.
A platform outage, inaccurate pricing, an improper account statement, or any other technical fault are all possibilities with any service. Not even a single broker is immune to such issues. Therefore, it’s crucial for traders to feel confident that their brokers are reachable, can be held to account, and will address concerns expeditiously and transparently. Moreover, it’s essential to ensure the broker you choose provides service in your native language.
What Trading Platforms/Apps Can you Use to Invest in USD/JPY?
There are different platforms available to trade USD/JPY. The most popular trading platforms among traders are MetaTrader 4 and MetaTrader 5, developed by MetaQuotes. However, some traders like to explore trading opportunities using brokers’ proprietary platforms. This section will look at some of the different trading platforms available in the market.
Trading USD/JPY on MT4 Trading Platforms/App
Most forex experts and trading professionals use the widely regarded industry standard platform, MetaTrader4 (MT4), to trade forex and stocks. Thanks to its robust features and rising popularity, nearly all USD/JPY brokers have MT4 as one of their supported trading platforms.
Since the forex market is highly volatile and trading conditions for USD/JPY can alter and shift in a heartbeat, latency can devastate your overall trading outcome. Because MT4 initiates transactions as rapidly as a forex broker processes them, it typically outperforms other trading platforms regarding speed. Furthermore, its incredible adaptability means that each trader may configure the platform to their liking and experience seamless trading.
Having access to data and statistics using MT4 is mesmerising. Undoubtedly, data analytics is the key element for anyone looking to succeed in the currency market. MT4 supports nearly all indicators or chart functions, allowing you to stay abreast of the market.
The fact that MT4 isn’t PC-only implies that traders may use it from any device at any time. If you’re a trader that is always on the go, MT4 is likely to fulfil your trading needs while commuting.
Trading USD/JPY on MT5
The multi-asset trading platform, MetaTrader 5, was introduced in 2010. Although MT5 is quicker and more effective than MT4, people still prefer to use MT4 due to being more familiar with it. Undoubtedly, traders can access a wider variety of tradable instruments across the forex, commodities, stock, index, and cryptocurrencies using the MT5 compared to the MT4.
MT5 offers all the tools and features required for profitable trading, including sophisticated technical and fundamental analysis, copy trading, trading signals, and trading robots. It has built-in support for 44 graphical objects like geometric shapes, Fibonacci, and Elliott tools, and 38 built-in technical indicators to help you predict market movement.
An up-to-date Economic Calendar featuring important macroeconomic events is also included in MT5. Traders may use this to stay on top of any news on the financial markets that could impact the value of the USD/JPY pair and other underlying assets.
Proprietary Trading Platforms
Given the increased demand from traders for customisable trading apps, USD/JPY brokers and other financial intermediaries came up with the idea of providing customers with more individualised trading environments beyond the widely used MT4 and MT5 platforms. As a result, they began providing traders with their own proprietary trading platforms. Some of the first companies to offer specialised trading platforms include eToro and the Capital.com Trading platform.
Millions of users rely on eToro to trade USD/JPY and other tradable assets. Users may take advantage of the eToro News Feed’s active debates and a wide range of investment and trading options. Moreover, the social investing element of the platform is truly remarkable.
Capital.com is the same way. The brokerage’s proprietary trading platform is a robust yet simple-to-use online application. The platform’s explorer tool appears to be useful for rapidly gauging which forex pairs are the most liquid and for gaining an overall feel for the market.
Spreads on USD/JPY
On the foreign exchange market, the values of the U.S. dollar and the Japanese yen are freely fluctuating. Therefore, the two currencies’ exchange rates will fluctuate daily and follow a pattern. Most USD/JPY brokers offer low spreads on the Ninja, while the pair is quite popular among Carry Trade enthusiasts due to having low-interest rates. Below we review different types of spread accounts you might come across.
Standard Spread USD/JPY Accounts
USD/JPY low spreads make the pair the preferred choice of most traders. The minimum spread you can expect when trading the USD/JPY stays between 0.2 to 2 pips, depending on the market conditions and your selected account type. For instance, standard account holders may have higher spreads compared to what is offered in the raw spread account.
Raw (Zero Spread) USD/JPY Accounts
While some USD/JPY brokers allow clients to trade USD/JPY for as low as 0.2 pips, others boast about their zero spread which traders may mistakenly believe they are getting something for nothing. However, zero-spread accounts often have higher commission fees, which might exceed the overall trading cost incurred in a standard spread account.
Why USD/JPY Brokers Need to be Regulated
Foreign exchange trading has indeed grown to dominate the global financial sector. It is challenging to govern the forex market because of its decentralised character. However, some USD/JPY brokers and other financial intermediaries’ irrational behaviour led authorities to develop regulations and introduce pre-defined rules for entities entrusted with public money.
If there were no control from the government, it would be too easy for brokers to steal their clients’ money. In addition, the high volatility of the USD/JPY exchange rate makes it imperative that prices be made public.
Regulations ensure that investors’ interests are always prioritised. In addition to maintaining high levels of liquidity, licensed brokers use cutting-edge security measures to protect their customers’ funds and personal information.
However, there is still a risk of fraudulent transactions because some entities take advantage of locations with insufficient monitoring. For example, scam brokers prefer to register offshore to avoid becoming penalised for breaching the code of conduct.
Consequently, it’s best to work with brokers that have been approved by reputable regulatory organisations like the National Futures Association (NFA) in the United States, the Financial Conduct Authority (FCA) in the United Kingdom, the Australian Securities and Investments Commission (ASIC) in Australia, etc.
What Reddit and Quora Say About USD/JPY Trading
There appears to be an abundance of threads on Reddit devoted to discussions of trading USD/JPY. Since most of the posts focus on hypothetical situations, we were curious to know how Redditors feel about trading USD/JPY in general.
Most clients think the USD/JPY pair provides more opportunities for trading compared to other forex pairs. However, some clients also voiced concerns regarding the high liquidity of the pair and the occasional BoJ intervention, which they consider to be the risk factor contributing to the pair’s high degree of unpredictability.
Members argued that the Bank of Japan (BoJ) has a habit of interfering in the foreign exchange market, when it believes that price action and fluctuations may risk economic development and Japan’s export industry. Therefore, traders must be informed about the Bank of Japan’s latest actions. Otherwise, they can be in for a rude awakening that will cost them a lot of money.
Like Reddit, Quora also seems to be full of debates regarding trading the USD/JPY forex pair. People are interested in hearing the thoughts of others about the question of whether it is better to trade USD/JPY on a long-term or short-term basis. While some feel that keeping it in one’s possession for a number of days before selling it can be a prudent decision, some people advocate day trading it.
Additionally, individuals have inquired about what pairs are safe to trade. The response from a Quora member came hard. According to him, there is no such thing as a “safe pair,” and the major pairs traded all have varying degrees of volatility. He further suggested learning the daily trading range of all currency pairs, including the USD/JPY, by keeping a close eye on the currency’s movement and behaviour so you become familiar with the nature of each.
The USD/JPY pair is one of the most actively traded pairs in the Asian market because of its high liquidity. Whether you’re a rookie or a seasoned trader, success with this pair depends on timing your transactions well and keeping an eye on the interest rates and other factors that could impact the pair’s price movement.
In this article, we tried to cover the USD/JPY in detail. Besides discussing why the pair is popular amongst traders and different ways to invest in it, we also listed the pros and cons, followed by a brief explanation of the risks associated with trading the Ninja.
In addition to finding details on different types of spreads and what platforms you can use to trade the USD/JPY pairs, you will get to know the factors you must look for when finding the best USD/JPY brokers and why they need to be regulated. Lastly, we compiled frequently asked questions to help you quickly recall key areas discussed in the article. Reading through this guide will ease the hunt for legitimate brokers and make you aware of the crucial aspects needed to be learned for a fruitful trading experience.
Q & A
The economic outlook of both countries (U.S. & Japan), political conditions and market psychology are the key factors that affect the price of the USD/JPY.
Various brokers claim to be the best to trade USD/JPY. However, eToro and capital.com are the two most competitive USD/JPY brokers. However, we don’t recommend signing up with them unless you do your research and make an independent decision.
The highest leverage for USD/JPY brokers subject to regulatory oversight is 1:30. However, some offshore brokers, such as FBS, provide even more lenient leverage of up to 1:2000.
When trading USD/JPY, the best leverage is the one that does not force the closure of a trading account. While you may use the leverage to increase market exposure, higher leverage can result in severe loss.
Yes! USD/JPY is a volatile pair. Although the price of the USD/JPY doesn’t change as frequently as the EUR/USD, it tends to vary quite often.
The best time to trade USD/JPY is between the hours of 12:00 and 15:00 GMT since it’s the time when the market undergoes the highest volatility level. Even though the Tokyo market is closed for the day, much trading activity occurs during this time since both the New York and London markets share this trading window.
The average daily pip movement of USD/JPY is estimated to be 100 pips.
According to the data on MyFXBook, BDSwiss appears to have the lowest spread on the USD/JPY pair, even though many other USD/JPY brokers assert that they provide low spreads on the pair in question. Clients can trade the USD/JPY pair for a spread as low as 0.3 pips at BDSwiss.
The average spread of USD/JPY stays around 1.4 pips.
Yes! USD/JPY brokers do charge a commission. Most forex brokers use a commission structure that is analogous to that of traditional brokers. They may also charge a fee for the difference between the ask and bid prices (spread) for the instruments being quoted.
Minimum deposits are typically not standardised among USD/JPY brokers. Some forex brokers will ask for a $50 initial deposit, while others will allow you to get started with as little as $1.
Yes! Due to its strong liquidity and modest bid-ask spreads, the USD/JPY is a good pair for both beginners and seasoned traders.
The Bank of Japan’s (BoJ) interest rates move the USD/JPY the most. Consequently, the USD/JPY may be used as a risk gauge to evaluate if and when to purchase or sell the currency pair based on current interest rate differentials. Trade may also use the interest rate to forecast the USD/JPY price direction.
The USD/JPY pair reached its highest price of 150.13 JPY on 20 Oct 2022.