| Updated: September 12, 2025Profile of Japan’s yen – important facts
This lesson will cover the following
- Important facts regarding the Japanese yen
- Carry trades
Important facts regarding the Japanese yen
First of all, Japan is considered a proxy for Asian economic strength, having the second-largest GDP on the continent. Because Japan’s capital markets are the most developed, the country has historically been a primary destination for foreign capital. Moreover, due to the intense trade flows between Japan and other Asian countries, any economic or political disturbance in Japan has an immediate impact on other Asian economies. At the same time, any disturbance among Japan’s Asian partners can influence the Japanese economy and, consequently, the exchange rate of the yen.
Second, yen crosses tend to become quite active near the end of Japan’s fiscal year (31 March), as export-oriented companies repatriate assets denominated in US dollars. This matters greatly to banking institutions because they have to re-establish their balance sheets in order to meet the requirements imposed by the Financial Services Authority (FSA). Banks are obliged to mark-to-market their securities positions. Repatriation-related yen purchases are widely anticipated by speculators in the foreign exchange market, who will likely bet that the national currency will appreciate because of the increased inflow. All of this often leads to yen depreciation after the end of the fiscal year, as speculators lock in their gains.
- Trade Forex
- Trade Crypto
- Trade Stocks
- Regulation: NFA
- Leverage: Day Margin
- Min Deposit: $100
Third, shares of Japanese banking corporations are of particular interest to currency traders. This is because the severity of the nation’s economic crisis was closely related to the non-performing loans held by Japanese banks. Any prospect of default, as well as weaker earnings reports or other disappointing data from these banks, may imply further deterioration in economic conditions. In this way, movements in the shares of domestic banks can precede movements in the national currency.
Fourth, as already noted, carry trades were very popular during the previous decade because market participants were constantly searching for high-yielding assets. There was a period when the yen had the lowest interest rate of all industrialised nations, which made it the most preferred currency to sell (borrow) in carry trades. Popular carry-trade currency pairs include NZD/JPY, AUD/JPY, CAD/JPY and GBP/JPY. In these trades, investors sell the yen and buy the higher-yielding currency. If the interest-rate differential narrows, this benefits the Japanese currency – the so-called reversal of carry trades involves going long the yen and short the other currency in the pair.