The Japanese economy has been asleep for two decades after a real estate and stock market bubble and subsequent crash. The combination cause and effect has been an overly strong Yen. In regards to currency trading, why is the Yen considered a safe haven currency? The Yen has been strong, overly strong, as a result of the deflation at home as well as the monetary policy pursued by Japan. However, this policy has made Japanese products overly expensive and hurt the export driven economy. Today things are changing in Japan as Japanese Prime Minister, Shinzo Abe is following a three pronged policy to get the Japanese economy moving again. Part of this policy is to double the money supply by next year. The Yen has fallen twenty percent since the first of the year. Trading a falling Yen is new territory for the majority of Forex traders. Trading a falling Yen can be profitable, or not, depending on how well one carries out fundamental analysis of Forex pairs as regards the Yen and other currencies. And, success in trading a falling Yen will depend on technical analysis of major Forex currencies as other nations adjust their monetary policies in order to protect their respective balances of payment.
Japanese Fiscal and Monetary Policy
For years after the Second World War Japan encouraged savings by its people. This resulted in large bank accounts and lots of money to lend in Japan. It was, to a degree, the cause of the excessive buying of property and stocks that lead to the crash twenty years ago. Since that time Japan has been trapped in deflation in which the Yen has been overly strong. This has hurt exports, production, and employment. The policy by the new government is meant to correct labor laws as well as import rules to make the economy more efficient and competitive. In addition, increasing the monetary supply is meant to reduce the value of the Yen, which it has, and increase exports which have gone up. The previously moribund Japanese economy rose at an annualized rate of three and a half percent in the first quarter of the year. The third leg of the stool is greatly increased government spending meant to stimulate the economy, add jobs, raise wages, and further raise economic production. If the entire package works, traders will likely be trading a falling Yen for another year or so.
Profiting from Trading a Falling Yen
Profitable tips for Forex day trading include following the pronouncements of government officials and central banks. Although the fundamentals eventually set Forex prices, market sentiment is greatly swayed by the Forex news and predictions that drive prices. Traders will want to cash in on the trend as the Yen continues to fall and be alert for a turn around when the policy runs its course or when politics change in Japan and drive the Yen back up. Trend trading, scalping, and channel trading will apply in trading a falling Yen. As always do your own fundamental analysis, keep abreast of market sentiment, and when you do not understand the market sit on the sidelines and watch instead of guessing and losing your trading capital.
