Japanese Yen futures (6J) allow market participants to take a position in the value of the yen against the U.S. dollar.
A majority, 80%, of the global foreign exchange (forex) market is concentrated on seven currencies. The yen is the third-most commonly traded. Because the Japanese economy is one of the largest in the world, and Tokyo is an important financial center, the relative dominance of the Japanese currency is appropriate.
However, for the last 30 years, Japan has experienced subpar economic growth, which lead its central bank to take a uniquely interventionist role in the currency and bond markets. This combination of a vibrant trade-based economy paired with Bank of Japan-depressed interest rates gives the yen unique properties sought by traders.
Each Japanese Yen futures contract represents 12,500,000 Japanese yen with a minimum price fluctuation of .0000005 per yen increment. The contract trades Sunday-Friday from 5 p.m. to 5 p.m. Central Time (CT), with a daily 60-minute break at 4 p.m. CT.
Like all participants in the forex market, those taking a position on the yen should monitor the release of economic data such as GDP, retail sales and inflation.
As typical of all major currencies, the valuation of the yen is largely influenced by the activities of Japan’s central bank. For the past few decades, the BOJ strove to keep interest rates low, which allowed traders to profit by selling the yen and using the proceeds to buy higher yielding currencies.
This transaction, known as the carry trade, is popular in low-interest rates and low-volatility environments, which often characterizes the yen trade.
Nonetheless, investors should remain vigilant as the Bank of Japan has a reputation of intervening in the currency markets when the yen moves in a direction that could hurt its export-based economy.