Lesson 3: A Traders Introduction to the Yen, Part III
Lesson 3: A Traders Introduction to the Yen, Part III
In our last lesson continued our discussion on the Japanese Yen, with a look at what happened to the Yen and Japan's economy after their asset price bubble began to burst in 1990, and how this still affects the currency today. In today's lesson we are going to wrap up our discussion on the Yen, with a look at Bank of Japan Intervention, and other fundamental factors which move the currency.
As we touched on in our first lesson in this series, Japan has few natural resources of their own, so they are an economy that relies heavily on imports of natural resources such as oil. This is something to keep in mind when trading the currency, because as Japan imports almost 100% of its oil from overseas, increases and decreases in the price of oil will normally have an affect on the value of the Yen.
The second thing that it is important to keep in mind, is that the Japanese economy relies heavily on exports such as cars and electronics to grow their economy. As a result of this, the value of Japan's currency is an even more important factor in their economic growth than for countries which do not rely so heavily on exports to drive domestic growth. As we learned about in our lessons on trade flows, a stronger Yen automatically means that Japanese goods and services become more expensive for overseas consumers, which will hurt Japanese exports.
To keep the Yen from rising to the point where it would hurt the Japanese economy, the Bank of Japan is notorious for intervening in the foreign exchange markets, which can send the value of the yen plummeting.
Below is a graph provided by Dailyfx.com which shows some of the history of Japanese intervention, which as you can see tends to take place around the 100 level in the currency. As the BOJ has been so effective with intervention in the past, it has gotten to the point now where all they need to do is talk of intervention (something called verbal intervention) to yen based pairs rocketing higher.
As with all the currency pairs we are studying, there are many economic indicators which affect the value of the yen, that we could spend much time discussing. As we have already covered the major indicators for the US in module 8 of our basics of trading course, and as the indicators in Japan are much the same, in the interest of maximizing our learning time I am going to point you towards two free sites for more information.
The first is FX Words Trading Glossary and their economic indicators page for Japan the link to which you can find below this video. As you can see here they provide not only the definition of each of the major releases but also the importance of the indicator to the market.
The second site is the global calander which you can find by clicking the calendar button at the top of dailyfx.com. As you can see here in addition to giving you the importance of the indicator, they also give you the time it is schedualed for release, the forcast, and where you can go to find out more information.
Thats our lesson for today and that wraps up our three lesson series on the Japanese Yen. In our next lesson we will start a new series on trading the British Pound so we hope to see you in that lesson.
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Tue 31 July 2018 AA JP- Bank of Japan A 06:00 DE- Retail Sales A 09:00 EZ- flash HICP/GDP AA 12:30 US- Core PCE Deflator A 14:00 US- CB Consumer Confidence Wed 1 Aug 2018 A Final Mfg PMIs AA 12:15 US- ADP Private Payrolls A 15:00 US- EIA Crude AA 18:00 US- Federal Reserve Decision Thu 2 Aug 2018 AA 11:00 GB- Bank of England Decision A 13:30 US- Weekly Jobless Fri 3 Aug 2018 A Final Services PMIs AA 12:30 US- Employment A 12:30 US/CA- Trade
John M. Bland, MBA co-founding Partner, Global-View.com
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