Yen bounces back as S&P 500 fears, gold prices rise

Key points

• USD/JPY is down almost 100 pips to start the week (0:58)
• S&P volatility has begun rising from lows (1:32)
• USD/JPY is still near historic highs (2:55)
• Gold prices rally back to $2,050/oz after recent dips (3:47)
• 71% of USD/JPY traders are short (5:03)

After a US dollar (USD) surge to start the year, Japanese yen (JPY) has begun to fight back against the dollar. USD/JPY gained over 800 pips in the first half of January, and is just now starting to give back - down 100 pips this week. Traders are keeping a close eye on this development, especially as the yen has a history of rallying in times of market uncertainty or fear.

USD/JPY price action

VIX points to building fear

The yen's rise comes amidst a backdrop of increased volatility in the global markets. The S&P 500 Volatility Index (VIX), often referred to as the market's "fear gauge," has seen an uptick, suggesting a growing apprehension among investors. Although the S&P 500 is near all-time highs, the VIX's movement indicates a sense of unease that could potentially lead to bullish momentum for the yen.

Another factor contributing to the yen's allure is the recent surge in gold prices. Gold, which is also considered a refuge during turbulent times, has climbed above $2,050/oz. This rally could be attributed to various geopolitical tensions and uncertainties in global equity markets, hinting at a broader search for stability among investors.

The correlation between the VIX, gold prices, and the yen's strength is not to be overlooked. Historically, when the VIX rises and gold appreciates, the yen often follows suit. For USD/JPY, this could mean a further fall if trends continue.

IG traders are majority long yen

As traders navigate these choppy waters, many are taking positions that reflect a bullish stance on the yen. Data from IG clients reveals that 71% of those with USD/JPY positions are short - betting on a weaker dollar and a stronger yen. This sentiment underscores the market's current cautious outlook and the yen's potential as a hedge against uncertainty. USD/JPY has seen fluctuations within a range of approximately 127.00 to 151.00 in the past year, and while it currently hovers close to the higher end of that spectrum, there's speculation about whether it will continue to climb or retreat towards a long-term mean.

How to trade USD/JPY

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on USD/JPY

Trading forex requires an account with a forex broker like IG. USD/JPY can be found in the "Major" pairs tab. Many traders watch other major forex pairs like GBP/USD and EUR/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 YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. 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.