Japanese yen: weakest currency of the decade

Data current as of 2/15/2024

Key points

• Dollar up 37.8% vs the yen since 2020: (1:00)
• 74% of USD/JPY traders are short: (2:55)
• Pound up 31.0% vs yen since 2020: (4:00)
• 72% of GBP/JPY traders are short: (5:12)
• Franc up 51.7% vs yen since 2020: (5:49)
• 85% of CHF/JPY traders are short: (7:25)
• Interest rates still negative in Japan: (8:06)

The Japanese yen's performance in the currency market has been under scrutiny, positioning it as one of the weakest currencies in this decade. Let's delve into the factors contributing to the yen's decline by examining its relationship with the US dollar, British pound, and Swiss franc.

USD/JPY surge

Since 2020, the US dollar has experienced a significant upswing of 37.8% against the Japanese yen. In that time, the dollar has hit multiple extremes including a 30-year high above 151.50 late last year. Despite this bullish trend, tastyfx client sentiment data reveals that a substantial 74% of traders engaging in the USD/JPY market have taken short positions - expecting a mean reversion towards more historically normal prices,

GBP/JPY resilience

British pound has demonstrated more consistent gains, with a 31.0% increase against the yen since 2020. GBP/JPY recently traded above 190.00 to mark its highest price since 2015. Similar to USD/JPY, a notable 72% of traders in the GBP/JPY market at tastyfx have opted for short positions.

CHF/JPY strength

The Swiss franc has emerged as a robust performer, witnessing a staggering 51.7% growth against the Japanese yen. Earlier this year, CHF/JPY hit an all time high around 171.50, and remains above 170.00. To contextualize the large percentage gain, the pair started the decade around 110.00. Despite this positive trend, an overwhelming 85% of traders at tastyfx in the CHF/JPY market have chosen short positions. Japan's persistent negative interest rates continue to influence trader decisions, illustrating the interconnectedness of monetary policies and currency movements in the forex market.

Interest rate differentials

A key factor behind the yen's weakness is the Bank of Japan's monetary policy. The BoJ has managed to keep interest rates at -0.1% for the past several years, while nearly every other major economy underwent a series of sharp rate hikes. At almost 5.5%, demand to hold US dollars has grown in comparison to JPY, which pays nothing to hold the currency.

In conclusion, the Japanese yen's status as the weakest currency of the decade reflects a complex interplay of economic factors, trader sentiment, and global market dynamics. By analyzing the performance of the yen against key currencies like the US dollar, British pound, and Swiss franc, traders can gain valuable insights into navigating the evolving landscape of currency trading.

How to trade Japanese yen

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on JPY pairs

Trading forex requires an account with a forex broker like tastyfx. Many traders watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.