How to Trade the USD/JPY in Binary Options

Updated on: 6 January 2020

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The USD/JPY pair is one of the most popular in the money markets. The interesting thing about this currency pair, especially with regard to the value of the yen, is that it experiences considerable influence from the equity markets around the world.

With practically every other currency pair you will ever meet, the most significant influence to the price movement of the underlying currencies is usually the economies of the associated countries.

As it turns out, news releases from the BOJ (Bank of Japan) play second fiddle to the impact of the global equity markets on the yen. This has a lot to do with the fact that Japan has a very strong export market, which exposes it to the influence of major equity markets in the world.

And let’s not forget that the USD/JPY pair accounts for nearly 20% of the trading volume in the forex markets. For this reason, it has quite a strong following in the forex and binary options trading communities. As one of the forex majors, the USD/JPY is a natural choice for many traders; the exception being those who like to dabble in exotic currencies.

As a matter of fact, the USD/JPY happens to be the second most popular currency pair after the EUR/USD. The benefit of this reality is that it is pretty easy to find all the information you need as you use this currency to trade in binary options.

Many analysts pay close attention to the fundamental factors affecting the currency pair, and most news sources will often report any significant news item about it as soon as it is released.

What to Look for When Trading the USD/JPY Pair in Binary Options

So, as you try out your luck with this currency pair in the binary options market, there are some things you have to pay attention to. For one, you need to understand that news reports by the US Federal Reserve will typically have a very strong impact on the price of the dollar.

Therefore, if the dollar’s value is affected, you can expect the comparative value of the yen to change, resulting in a visible price change for the USD/JPY pair. In any case, the news to look out for include NFP (Non-Farm Payrolls data), inflation reports, monetary policies, and various other economic markers.

There is obviously a lot more to this than that. As with any other currency, you have to understand that a currency’s price moves depending on how much reported figures vary from what the market expected in general.

Therefore, if the released reports indicate that the economy, with respect to a factor like employment, is doing a lot better than what industry experts predicted, you can expect to see an increase in the value of the dollar. This will be evident in form of an increase in the USD/JPY price since more yens will be necessary to purchase a much stronger dollar. The reverse is also true.

Similarly, reports by the Bank of Japan can make a lot of difference in the way this currency pair trades in the market. Other important reports on the state of the Japanese economy also tend to have a similar effect on the USD/JPY pair. They include interest rate changes, GDP, CPI (Consumer Price Index) and PPI (Producer Price Index) among others.

Again, it is important to understand that it’s the difference between expectations and reality that causes the biggest price changes for a given currency. That’s why in cases where there isn’t much deviation between predictions and actual figures, the price may experience some spikes and then retract back to its initial price range.

An important, albeit interesting, fact to note is that news from the US play a greater significance in the price direction of this currency pair than the news released by Japanese authorities. Consequently, Japanese economic news tend to have less of an impact on the USD/JPY pair than either the global equity markets or US economic news.

Partly, this has something to do with the fact that these news releases occur during the Asian trading session, which is generally characterized by low liquidity. But that does not mean you should completely ignore the news that BOJ releases; you just have to prepare yourself for the fact that these economic and financial reports might not have as big of an impact on the value of the yen as you might typically expect of other currencies.

And, as already stated earlier, the way the equities market is behaving around the world also tends to have a significant impact on the way the USD/JPY pair trades in the forex markets. This even includes the US equities market.

What this Information Actually Means for the USDJPY Price Direction

If you have to trade in options where the direction of the trade is important, and not just the magnitude, it’s important to understand how the news items will influence price direction.

For instance, high interest rates attract foreign investments. Since the foreign concerns will need the local currency to operate in these markets, the demand for the respective currency will go up; and consequently, its value. From this, you should gather than the other currency will be weaker in comparison, and the subsequent price movement will reflect this fact.

And while economic data from central regulators is important, you have to also understand that the central banks will often step in to influence the currency’s value in order to achieve a certain economic situation. For instance, the BOJ might intervene in order to keep the yen from rising in value too much, because that might have a negative impact on its export market.

Moves like quantitative easing, which both the Fed and the BOJ are known to use, can nullify or even mitigate the expected impact of positive or negative economic news on a currency’s value.

The Best Time to Trade the USD/JPY Pair

One of the most important things to look out for when trading the USD/JPY pair is the news released in the US by the Federal reserve. It should also help to keep an eye on the US equities because they tend to have a very notable effect on the relationship between the two currencies.

At these times, the pair can experience considerable price fluctuations, which can give you plenty of opportunities to profit from Range and even High/Low options.

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