Introduction
When deciding to trade in the foreign exchange market, it is essential to realize the mechanisms that make one currency more attractive than another. Among the main factors, we obviously find the interest rate of these currencies and it is therefore necessary to know how to carry out the analysis to determine whether the change in the pair in question will go up or down. This also applies to the EUR/JPY.
What Is The EUR/JPY Currency Pair?
The currency pair EUR/JPY represents the exchange rate of one euro in yen. It therefore gives the value of one euro in number of yen. This currency pair has its importance because it alone represents almost 3% of all the transactions carried out on the foreign exchange market every day. It is also the seventh most traded currency pair in the world. It must be said that EUR/JPY trading is interesting because this pair is one of the most volatile on the market. It is certainly, for this reason that the EUR/JPY pair lends itself particularly well to scalping. In fact, its historical volatility has reached 210 pips in the past.
Which Organizations Set EUR/JPY Rate?
The bodies responsible for determining the currency interest rates are obviously the large central banks of each country or group of countries. As for the euro, it is the ECB or the European Central Bank that is dealing with it. For the yen, the Bank of Japan determines the rate. The interest rates of these two currencies obviously spread regularly and are published in the economic calendar at each modification.
Why Do Rates Affect The EUR/JPY Exchange Rate?
The influence of interest rates on currencies such as the euro or the yen is stronger when the rate difference within the same pair is large. As a result, a low interest rate currency will be cheaper to buy and a high interest rate currency will be cheaper at resale. It is therefore possible to set up an effective trading strategy thanks to the analysis of these rates, anticipating the revaluations to take or close a position.
What Are the Events to Follow to Analyse This Currency Pair?
To deal effectively with the pair EUR/JPY you must pay particular attention to the various economic and political announcements, which have a very important influence on its course. However, these news coming from the Euro will have more impact here than those coming from the Yen since this currency is in this case the base currency of this pair. However, the Yen also has a peculiarity that should be taken into account to avoid making mistakes. It is indeed a currency that lends itself particularly to carry trades and above all when pair puts forward the Euro as an opponent.The benchmark interest rate on the Yen, kept artificially as close to zero as possible by the Bank of Japan, favors the use of this currency to earn money with differential rates. Attention: currently the carry trade is no longer the most widespread way of dealing with the Yen and above all the EUR/JPY pair which remains massively influenced by the European economy. After all, the interest rate differences has fallen sharply for a few years and the Yen has at the same time acquired a lot of value owing to this trading method, which has caused a lack of competitiveness of the country in exports in recent times.
The Various Elements to Know About The EUR/JPY
When it comes to the EUR/JPY pair we need to know the fundamental elements. For example, know that this currency pair is listed on the Forex with 2 decimals even if some brokers display the value with 3 decimals. The value of this pair is called fluctuating value because it is regulated by the phenomenon of demand and supply exercised on the Forex. The monetary policy of these two currencies is implemented and controlled by local financial bodies, namely the European Central Bank or ECB for the Euro and the Bank of Japan or BoJ for the Yen. It is important to note that the BoJ has the habit of regularly intervening in the foreign exchange market to artificially modify the value of the Yen and thus favor the country’s competitiveness in exports. Generally, all publications from either of these control institutions have an impact on the values of the currency pair EUR/JPY.
The Status of Safe Haven of the Yen Compared to The Euro
Before starting to deal with the EUR/JPY pair quotation, you should be aware that the yen is a currency that has long been considered a safe haven. But what does this actually mean? When we talk about the value of shelter for a currency of the foreign exchange market, we talk first of all about the currency of a country that has a particularly stable and relatively strong economy over time. It is obviously the case of Japan that, in the past, has shown on many occasions its ability to emerge from serious crises. The fact that the Yen is a currency that is widely used in the context of international trade is another element that makes it possible to make it a safe haven.
The yen is not a safe haven market of any kind but it is undoubtedly the most attractive one. In fact, compared to other monetary refuge values like the Swiss franc and gold, the yen enjoys an important advantage with regard to its debt. This argument might seem strange when we know that Japan is actually the most indebted country in the world with a debt level that reaches and even exceeds 225% of the national PIB. The fact is that, unlike what is observed in other countries, Japan’s debt is held for over 90% by the country itself and by the Japanese while, for example in the Euro zone, the debt is held by the States for less than 50 %.Being the majority owner of its debt, Japan does not suffer, or suffer little, the uncertainties of the financial markets as regards its refinancing when the world public debt reaches its highest levels and the markets have more and more influence at all levels. This specificity of Japan is unique in the world and generates further interest in this currency from investors. Another element that makes the yen a value that presents few risks consists in the extremely high savings reserves that Japan has accumulated over time. This saving could have been accumulated thanks to the fact that Japan is still today one of the most exported countries in the world. Thanks to these characteristics of Japan, the yen is therefore a currency often highly appreciated by traders in times of severe economic crisis, as shown by historical charts of EUR/JPY or USD/JPY.On the other hand, the relationship between the yen and world economic health is two-way, given that it is possible to interpret an important appreciation of this currency as a warning sign of a new period of crisis in the world. The Influence of the Japanese Economy On The EUR/JPY As we have just seen when talking about the status of safe haven for the yen, the EUR/JPY pair may be strongly influenced by world economic health but also undergoes the direct influence of the Japanese economy. It should be remembered that Japan is currently the fourth largest exporter in the world realizing over 700 billion dollars in exports per year. Among the most profitable and predominant sectors of activity in Japan we find in particular the automobile sector which generates about 20% of exports while considering vehicles and spare parts and the IT and new technologies sector which represents about 7% of exports of the country.The observation of the evolution of this country’s trade balance is interesting because it shows a saw-tooth progression and is sometimes positive and sometimes negative. This specific shape variation is explained by the fact that although Japan exports many goods it also imports many others, especially raw materials such as oil, which represents over 30% of the country’s total imports. It is also important to know that Japan’s economy also depends largely on the health of the yen. In fact, when the value of the yen tends to fall on the foreign exchange market, exports are favored which increases Japan’s international competitiveness and therefore has a tendency to appreciate again.On the contrary, if the yen gains value it will end up falling because it penalizes the growth of the country making it less competitive.To conclude this article dedicated to EUR/JPY it can therefore be noted that the factors influencing this pair are numerous and varied. Therefore, both the economic and political data of the Euro zone and the status of refuge value of the yen as well as the economic cycles of Japan will be taken into consideration. You will also need to closely monitor all announcements and decision-making by ECB and BoJ central banks that have a direct influence on this pair. Finally, to complement your fundamental analysis of these two currencies, the technical analysis that is indispensable for identifying the strength and possible duration of a trend should not be overlooked.
Tips for Trading The EUR/JPY
To predict the movements of EUR/JPY through fundamental analysis, it is necessary to carefully monitor the various indicators which we are now providing some concrete examples among the most interesting ones.
The difference between Japan’s imports and exports.
- The economic strength of Japan and the euro area as well as the relationships between these two economic zones.
- The price of energy raw materials including crude oil, which Japan is a major importer, and natural gas.
- Natural disasters that can affect the Japanese economy and therefore the strength of its currency.
- Government interventions in Japan and Europe aimed at favoring the economy such as interest rates set by the ECB and the Bank of Japan.
- The bond purchase programs, one of the softening measures that have the most effect on the foreign exchange market, in particular the Yen.
- The economic instability in the euro zone and all the corresponding news will obviously have an influence on the quotation of the EUR/JPY.
- ECB meetings held 8 times a year.
- The PMI indices, the consumer price index or the inflation data.
Trade the EUR/JPY Online!
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