Trade Wars And Currency Fluctuations: Navigating The US Dollar-Japanese Yen Landscape
What drives global economies is usually the interplay between major currencies. One such dynamic is the ongoing saga between the US dollar and the Japanese. Unfortunately, trade wars and currency fluctuations often affect this pair, significantly impacting the markets and the global economy.
In the 1980s, the Japanese Yen was a reserve currency. However, currently, it’s the US dollar despite Japan being one of the world’s largest exporters. Despite being frequently used as a proxy for Asian economic growth, it’s pretty impressive how the Japanese Yen has remained one of the most stable Asian currencies.
Navigating the landscape of trade wars and currency fluctuations between the US dollar and the Japanese yen requires a multifaceted understanding of economic principles, geopolitical dynamics, and market trends. Here’s a breakdown of key factors to consider:
Here’, we explore the complexities to help you understand the trade wars and how to navigate the challenging USD-JPY landscape. Let’s look at and delve into it.
Understanding Currency Wars and Exchange Rate Diplomacy
Currency/trade wars are also called competitive devaluations. It happens when economic conflicts between countries emerge and can be deliberate manipulations to help their currencies gain a competitive advantage. Sometimes, trade wars like the US Dollar vs Japanese Yen result from protectionist policies aimed at boosting exports while shielding domestic industries.
According to experts, currency wars are not merely about exchange rates. They are also a form of diplomatic leverage in the global economic arena. Countries use strategic devaluations or appreciations to enhance their trade competitiveness or mitigate economic imbalances. The resultant fluctuations in the US dollar and the Japanese yen exchange rates can profoundly impact businesses and investors.
Modern Currency Wars: US Dollar versus Japanese Yen
In 2013, the financial world was slightly shocked when the Bank of Japan (BOJ) decided to dive into quantitative easing. This move caused a whopping 25% drop in the Yen’s value against the US dollar. That is when people started whispering about “Japan bashing” by the US.
There was a worry that Japan was being unfairly targeted. However, you know what? That significant drop in the Yen’s value? It wasn’t some malicious attack. It was just the Yen catching up to the dollar’s purchasing power.
Since the 2008 financial crisis, the BOJ has taken a page from the playbooks of other big central banks like the Bank of England, the European Central Bank, and the US Federal Reserve. So, if anyone’s pointing fingers at the BOJ for messing with currency values, they’re only partially right. It would take another big drop in the Yen to lay blame at their door.
Navigating the US Dollar vs Japanese Yen Landscape
When trading the USD/JPY pair, there are two ways to understand the financial markets: technical or fundamental analysis. These methods are usually combined to give a broader view of the technical and economic landscape.
1. Fundamental Analysis
Staying informed on important events is part of the analysis process for numerous FX traders. This primarily entails comprehension of the directives of central banks, their monetary policies, and fiscal strategies. In the context of this discourse, the focus is on the US Federal Reserve (Fed) and the Bank of Japan (BoJ).
The guidance issued by these central banks (Fed and BoJ) holds significant sway. Indeed, their policy declarations undergo meticulous scrutiny for insights into forthcoming rate determinations. Central banks articulate forecasts for pivotal economic metrics. Also, they underscore the data they will monitor closely.
While trading in foreign exchanges, market participants should pay considerable attention to the statements made by central bank officials. You can track the policies through financial media and during engagements like panel discussions. It is worth noting that any alignment or discord between their remarks and incoming economic data can escalate volatility in the USD/JPY pair. Such can present tradable prospects.
Once the macroeconomic landscape is comprehended, many traders and investors typically pivot towards technical analysis to gauge optimal entry points into the market, thereby aiding both market entry and risk mitigation.
2. Technical Analysis
Technical analysis is vital when navigating the US dollar – Japanese Yen landscape because it helps spot trading opportunities. It involves scrutinizing factors such as past price movements, volume trends, volatility assessments, pattern recognition, and the utilization of technical indicators.
Conclusion
The USD/JPY pair is undoubtedly among the most traded, forming an important marker in trade between the US and the Asian markets. Trading with USD dollars versus Japanese Yen can sometimes take time and effort, but outcomes are worthwhile. You do fundamental and technical analysis to navigate the USD-JPY landscape smoothly.
Fundamental analysis helps you understand important news events like directives of central banks and how it affect price, while technical analysis allows you to spot trading opportunities.
