Overview, Knowing the Japanese Yen, Factors Affecting Yen

Knowing the Japanese Yen

Indicates Strength of the Asian Economy: Japan is Asia's tiger in the economic arena. Most of the Asian countries trade in significant proportions with Japan. The strengthening or weakening of their economies impacts Japan and vice versa.

Forex Market Intervention by the Policy Makers: Japan is one of the few developed countries where the Regulatory authorities (MoF & BoJ) intervene the market. They do so to maintain a weak Yen to spur exports, and it has been found that huge appreciation/depreciation of the Yen within a short span invites their intervention, but seldom above the 115 level of the Yen. They are also known for outwitting FX speculators by taking opposite positions in the Forex Markets to maximize effects.

Sensitivity to Fiscal Year Ending: In order to meet FSA guidelines, the Japanese banks need to construct their Balance Sheets by March'31st every year. This requires their assets in JPY and prompts speculators to hoard the Yen in advance.

Sensitivity to Japanese 'lunch time' trading hours: FX Traders in Japan areknown for their hour-long lunchtime breaks (10-11PM EST). The market loses its liquidity at these times, but the JPY is highly volatile during the US Trading hours.

Influence of Banking Stocks on the Yen: Japan was plunged into grave economic crisis due to the bad (Non Performing) loans of its banks. Any indication of worsening of the NPL status of the banks can have further adverse impact on the the Yen.

Effect of Carry Trades & Cross Rates: In order to maintain arithmetic equilibrium, a rise in EUR/JPY is consequently followed by a rise in USD/JPY, and vice versa - called Cross Rate Effect. Carry Trade involves selling JPY (with the worst interest rates among developed nations) and buying EUR or USD (with higher interest rates).

Overview, Knowing the Japanese Yen, Factors Affecting Yen