The Forex market, also known as the foreign exchange market, is the largest financial market in the world. It is where currencies are traded 24 hours a day, five days a week, with an average daily trading volume of $6.6 trillion. Among the major currencies traded in the Forex market, the Japanese yen (JPY) is considered one of the most important currencies. In this article, we will explore the percentage of global daily forex that the yen makes up.
The Japanese yen is the third most traded currency in the world, accounting for around 16.5% of the daily Forex turnover. This is a significant percentage considering that there are over 180 currencies in the world. The yen is also the most traded currency in the Asian region, followed by the Chinese yuan and the Hong Kong dollar.
One of the main reasons why the yen is a popular currency among Forex traders is its stability and liquidity. The Bank of Japan (BOJ) is known for its conservative monetary policy, which has helped maintain the stability of the JPY. The BOJ also has a massive foreign exchange reserve, which makes it possible for the central bank to intervene in the Forex market to stabilize the yen’s value. This makes the yen a safe haven currency, especially during times of market turmoil.
Another reason why the yen is popular among Forex traders is its correlation with other major currencies. The yen is often used as a funding currency for carry trades. Carry trades involve borrowing in a low-interest-rate currency, such as the yen, and investing in a high-interest-rate currency, such as the Australian dollar. The interest rate differential generates a profit for the trader. However, carry trades are risky as they are highly leveraged, and any adverse movement in the exchange rate could result in significant losses.
The yen’s popularity in the Forex market can also be attributed to Japan’s position as a major exporter. Japan is the world’s third-largest economy, and its exports account for a significant portion of its GDP. As a result, any fluctuations in the yen’s value can impact Japan’s export competitiveness. The BOJ’s monetary policy is often geared towards maintaining a weaker yen to boost exports.
The yen’s position in the Forex market can also be analyzed by looking at the currency’s performance against other major currencies. In 2020, the yen appreciated against the US dollar, the euro, and the British pound. However, the yen depreciated against the Australian dollar and the Canadian dollar. This is because the Australian and Canadian economies are highly dependent on commodity exports, and their currencies are positively correlated with commodity prices.
In conclusion, the Japanese yen is a significant currency in the Forex market, accounting for around 16.5% of the daily Forex turnover. The yen’s popularity can be attributed to its stability and liquidity, its correlation with other major currencies, Japan’s position as a major exporter, and the BOJ’s monetary policy. The yen’s performance against other major currencies also reflects its position in the Forex market.