Japanese yen collapse: how bad can it get?
USD/JPY closed at its highest price in 30 years above 150.00. Learn how interest rates are influencing these historic extremes and how far the yen could potentially fall.
Key points
- USD/JPY hit 150.00 Wednesday, closing at its highest price in 30 years
- The interest rate differential between US and Japan remains over 5%
- Futures options are currently pricing an 8% chance of USD/JPY hitting 155.00
Highest USD/JPY prices in 30 years
USD/JPY hit the psychologically significant 150.00 midday Wednesday. Unlike earlier this month which only saw prices above 150.00 for less than 15 minutes, prices continued higher throughout the day - closing at 150.421 to mark the highest daily close since 1990.
The latest message from the Fed indicated interest rates may remain high for a longer duration, which could be reflected in USD/JPY. With interest rates still negative in Japan, the difference to US rates is above 5%. Traders could be anticipating this differential could remain high for a while, driving the yen lower. Deltas on Futures options expiring January 5th indicate traders currently believe there is an 8% chance USD/JPY could get as high as 155.00.
Both the Bank of Japan and the FOMC meet next week which could change the interest rate landscape and send action into USD/JPY.
How to trade USD/JPY
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD/JPY
Trading forex requires an account with a forex provider like IG. USD/JPY can be found in IG's platform under the 'Major' pairs tab. Many traders also watch major forex pairs like GBP/USD and AUD/USD 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 IG’s Trading Academy. 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.
Why do interest rates matter to forex traders?
Interest rates impact forex markets because they determine the cost to hold or borrow currencies overnight. The differential between interest rates can cause greater demand for a certain currency over the other.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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