Carry trade is a popular and lucrative strategy, and the EURJPY is one of the more popular pairs for the style. In this page we are presenting a live EURJPY chart, followed by a discussion of the two currencies with respect to history and economic data, and conclude with a brief examination of various ways to trade the pair.
The Euro is the currency of the Eurozone, comprising of the sixteen EU-member nations that have adopted it after meeting the convergence criteria. The GDP of the EU is about $16 trillion, the largest in the world in purchase power parity terms.
The Euro is the second most important currency in the world. Many traders regard it as a future alternative to the US dollar, and while the dollar losing the main advantages of its dominant status is unlikely any time soon, it is true that the Euro has greatest potential becoming the new global currency over the longer term.
Trends in the Euro are mostly determined by speculative flows, central bank behavior (especially that of the Chinese, Russian, and Middle Eastern central banks), risk sentiment, and general market dynamics. Trends in the Euro often correlate well stock or commodity market trends. When prices of raw materials rise, much of the earnings of raw materials exporters are channeled to the Euro for diversification purposes.
The Japanese Yen
If the world of the carry trade turns cause is the Japanese Yen. Due to the near zero interest rates of the Bank of Japan maintained for more than a decade in order to propel the country out of its economic coma, speculators everywhere have found cheap and easy funding in the Japanese currency for whatever they may have in mind.
Japan has a GDP of $4,35 trillion and a per capita income of $34.000 as of 2008. It runs a $100 billion yearly trade surplus with the rest of the world, and is the fourth largest exporter, after Germany, China, and the US. But while the nation has dynamic external trade relationships, the domestic sector has been exceptionally weak for many years. Partly due to the unbalanced pricing policies of Japanese companies, partly because of demographics, and partly because of cultural reasons, Japan has struggled to generate a significant amount of growth in domestic demand over the past two decades.
Trading the EURJPY pair
The EURJPY pair is similar to other carry pairs. It is less volatile than AUDJPY, but more so than the EURUSD. The main driver of trends in EURJPY, is investor sentiment. A combined analysis of stock, commodity, and bond markets is usually enough to determine the future direction of this volatile pair, since the vast amounts borrowed at cheap cost from Japan tend to be recycled to all kinds of secondary assets in European markets. The major factors influencing risk sentiment in this pair, beyond general factors are sales of Japanese government bonds (JGBs), and interest rate policies of the ECB. Although rumors about Japan raising rates can cause temporary fluctuations, the false nature of the claims often prevent them from having any long term meaning.
The EURJPY pair is highly volatile, and is suitable to scalping strategies. Depending on stock market trends, it is also possible to carry trade this pair on a long-term basis, a fact that leads to interesting and complex strategies. As with most currency pairs, one has the option of trading the pair through the futures, options, and ETF markets.
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