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

DEFINITION of 'USD/JPY (U.S. Dollar/Japanese Yen) '

The abbreviation for the U.S. dollar and Japanese yen cross rate is quoted as the USD/JPY. 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 is ¥. 

Trading the USD/JPY currency pair is also known as trading the "gopher."

BREAKING DOWN 'USD/JPY (U.S. Dollar/Japanese Yen) '

The value of the USD/JPY pair is quoted as 1 U.S. dollar per x Japanese yen. For example, if the pair is trading at 150 it means that it takes 150 yen to buy 1 U.S. dollar.

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.

Safe haven

Despite the struggles of the Japanese economy in the 21st century, the yen remains a safe haven currency, meaning in times of investor stress or market turmoil, the Japanese yen appreciates. 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 when in 2013, the Bank of Japan embarked on large-scale quantitative easing.  

Correlations

The USD/JPY tends to have a positive correlation with the USD/CHF because they all use the U.S. dollar as the base currency and the Swiss franc remains another one of the worlds safe haven currencies. 

On the flip side, USD/JPY is negatively correlated with gold. As USD/JPY fell during the crisis, gold prices soared.