The GBP to Yen is an extremely volatile pair, and because the JPY is historically a low yielding currency, it is often used as a funding currency-this article will dig deeper.
The Japanese Yen (JPY) is the third most traded currency worldwide, second to the dollar and the euro. It came into inception on May 10th, 1871. Japan is renowned as one of the safest countries with minimal crime rates; henceforth, carrying cash around is not a challenge. Paying in cash is their most favourable mode of payment. In the forex market, the British Pound Sterling (GBP) is the fourth most traded currency.
Yen to Pound analysis
Looking at the last week, the JPY/GBP has held steady at a rate of 1 JPY = 0.0073 at the lowest and 1 JPY = 0.0074 at the highest.
Incidentally, on the foreign exchange markets, the most popular British pound exchange rate is the GBP to EUR, and the most popular Japanese Yen exchange rate is the JPY to EUR rate.
In a comparative analysis of the pound to yen over the last three months, we see highs of 143.0 within the first week of September and the lowest deep at the end of September with a low of 133.5. GBP/JPY held steady the second half of September at an average rate of 135.9.
Since its inception in 1871, the JPY value was similar to that of the US dollar (USD). Before the Second World War, the JPY remained steady at an average of $0.30 when it fell again to $0.23. At this time, the dollar compared to the pound at $4.03.
What to factor before trading
Before trading this pair, you need to understand certain fundamentals, the risks, and the benefits, factoring in liquidity possibilities due to the pair’s volatility. Conducting a technical analysis may help decide whether to place a bullish (upward) trade or a bearish (downward) one. There are several online platforms available to assist with this analysis of the most popular technical indicators – Oscillators, Pivots, and Moving Averages.
Breaking down the GBP/JPY pair
GBP/JPY refers to the relative value of the pound against the value of the yen. They are both traded frequently, qualifying them among the top eight global currencies. The yen accounts for around 20% in terms of forex trading volume while the pound is approximately 13%.
GBP/JPY is a pair that beckons attention to traders and investors for several reasons:
- Nature of the Pair: High-interest rates have directed the pounds usage in carrying trades. The yen became the funding currency of carrying trades, leading to high volatility and creating various forex trading opportunities.
- Volatility: This pair has a high pip value due to its volatility, not one experienced by many pairs, creating many opportunities to generate profit.
- Resources Availability: Forex trading is now more comfortable due to the exposure to knowledgeable trading communities, forums, trading blogs, access to candlesticks, and various indicators. There is a lot of information online for beginners and experts alike.
- Risk Tracking: GBP/JPY is one of the pairs that rises and falls with commodities and stocks making it a profitable pair.
Why is the Yen so weak?
The Japanese Yen started as being similar in value to the USD at the inception of the yen. Wartime spending caused massive inflation weakening the yen to a value of 360 JPY to 1 USD. World War II caused the low nominal value of the JPY. However, the nominal value does not measure the strength of a currency; its change over time does. You may share this crucial information on Facebook.
May it be noted that the Japanese government keeps the yen artificially low because Japan’s economy runs on exports. Anomalous stability reflects low investment persuasion. The yen is the fourth reserve currency in popularity behind the USD, Euro, and Sterling pound. When there is uncertainty in Asia, be it economic or political, the yen becomes a good fall back for investors. This means that if there is a crisis worldwide that does not affect Japan directly, there will still be significant moves in the JPY.
Impact of the Bank of Japan
This pair experiences higher volumes around major market announcements though the forex market is available 24 hours a day. UK trading, however, is active from 8 am and winds down at 5 pm. Factors affecting the value of the GBP include the performance of the economy in the UK. Gross domestic product reports released are followed by traders and investors to help determine market movements.
The Bank of England utilises monetary policies to control inflation when it begins to rise drastically. These procedures may cause a rise in interest rates, a factor considered by traders when performing market analysis, and possible direction for the GBP/JPY pair.
The Bank of Japan similarly affects this pair. When economic data reports are released indicative of interest rates, they help traders determine future price movements. Japan, being a small country, has its currency and rates affected by natural disasters.
