USD/JPY (U.S. Dollar/Japanese Yen)

What Is USD/JPY (U.S. Dollar/Japanese Yen)?

USD/JPY is the abbreviation used to denote the currency exchange rate for the U.S. dollar and Japanese yen. The currency pair shows how many Japanese yen (the quote currency) are needed to purchase one U.S. dollar (the base currency). The symbol for the Japanese yen (JPY) is ¥. 

Understanding the USD/JPY (U.S. Dollar/Japanese Yen) Pair

The value of the USD/JPY pair is quoted as one U.S. dollar per a certain amount of Japanese yen. For example, if the pair is trading at 150 it means that one U.S. dollar can be exchanged for 150 Yen. Given that the Japanese yen is also widely used as a reserve currency just like the US dollar, the USD/JPY exchange rate is one of the most liquid and traded currency pairs in the world.

The USD/JPY is affected by factors that influence the value of the U.S. dollar and the Japanese yen, both in relation to each other and to other currencies. For this reason, the interest rate differential between the Federal Reserve (FED) and the Bank of Japan (BOJ) will affect the value of these currencies when compared to each other. For example, when the Fed intervenes in open market activities to make the U.S. dollar stronger, the value of the USD/JPY cross could increase, due to a strengthening of the U.S. dollar when compared to the Japanese yen.

A Safe Haven

Despite the struggles of the Japanese economy in the 21st century, the yen remains a safe haven currency, meaning that in times of market turmoil, investors seek refuge in the Japanese yen causing it to appreciate. This was evident during the Great Recession, where it traded from above ¥120 in 2007, to below ¥90 in 2009. 

On the other side of the coin, the yen tends to weaken when the global economy is strong and stock markets are moving higher. In the post-Recession years, this was evident where the yen slowly lost its value against the U.S. dollar as the global economy recovered. The weakening was exasperated in 2013 when the Bank of Japan embarked on large-scale quantitative easing.  

USD/JPY Correlations

The USD/JPY tends to have a positive correlation with USD/CHF because, aside from the fact that they both use the U.S. dollar as the base currency, the Swiss franc is the other currency that has a safe-haven status with investors. On the flip side, USD/JPY is negatively correlated with gold. As USD/JPY fell during the crisis, gold prices soared.

The USD/JPY currency pair has traditionally had a close correlation with U.S. Treasuries.