Recently, I was reviewing some currency data and came across something interesting: the Japanese yen is still one of the most fascinating assets in the Forex market, but many traders underestimate it. I’m going to share what I’ve found.

First of all, what stands out is that Japan is the fourth-largest economy in the world by GDP, with 4.1 trillion euros. That alone explains why the currency issued by its central bank is so significant. The yen is neither an exotic currency nor anything of the sort; it is the third most traded currency in the foreign exchange markets after the dollar and the euro.

Now, the yen has a rather particular history. It officially began operating on May 10, 1871, following a monetary law during the Meiji government. What’s interesting is that from the very beginning, a clear structure was established: the yen was divided into 100 sen and 1,000 rin, allowing fractions of the yen similar to how cents work in other currencies. The Bank of Japan, which is responsible for issuing the currency, was established later, in October 1882.

One of the aspects that intrigues me most is why the JPY has a reputation as a safe-haven asset. The reason makes sense: historically, it tends to appreciate when the dollar suffers volatility. This happens for several reasons. Japan has traditionally maintained a trade surplus, interest rates have been low for decades (which makes it easier to borrow and invest), and the country has a solid reputation worldwide. In addition, the Japanese people have the habit of investing in domestic debt and repatriating capital when there is international instability.

To check whether this reputation is justified, you only need to look at three key moments. During the dot-com crisis of 2000, when the NASDAQ fell by -72%, the yen began its moment of glory. Then came the 2008 financial crisis, where it truly shone: from June 2007 to October 2011, the yen revalued by +64% against the dollar. Even during the COVID crisis, although the behavior was more volatile, the yen demonstrated its responsiveness.

Recent behavior is especially revealing. Throughout 2022, while the FED was raising rates aggressively, the Bank of Japan kept its monetary policy loose, with rates anchored at -0.10%. This caused the dollar to appreciate strongly versus the yen. But in October things changed: first because rumors began circulating about a possible slowdown by the FED, and second because the BoJ started selling its dollar reserves to buy yen, a measure that proved quite effective.

The factors that move the yen are varied. On the positive side, improvements in GDP forecasts, increased exports, higher demand for Japanese products (China, the dollar’s main clients include the US, South Korea, and Hong Kong), and favorable economic reports all help. On the negative side, economic deterioration, problems with trading partners, yen overselling, or any news that revives memories of the 1990 real estate crisis all hurt.

What attracts me most about the USD/JPY pair is its volatility. Unlike other pairs that can become monotonous, this one offers real opportunities for returns in both bullish and bearish scenarios. That said, precisely because of this volatility, you need to trade carefully if you use leverage. It’s one of the most active pairs for trading strategies, but it requires discipline.

In conclusion, the yen deserves the status it has reached. It’s a currency that works both as a safe-haven asset and a trading tool, with a proven track record during times of crisis. If you’re interested in trading currencies, this pair should definitely be on your radar. My recommendation is to start with demo accounts to get familiar with how it behaves, and then gradually implement real trading as you gain experience.