Why are Yen the preferred currency for traders: Complete Guide to JPY

2025-12-25 01:00:44

When we talk about high-volume currencies in the Forex markets, it is impossible not to mention the yen, the Japanese currency that ranks third worldwide in daily trading. Why such importance? Because behind the JPY is a solid economy like Japan’s, with a GDP reaching 4.1 trillion euros, making it the fourth-largest global economic power.

Yen have particularities that make them especially attractive to those seeking volatility and profitable opportunities. Unlike other more “calm” currencies, the USD/JPY pair offers sharp movements that allow for gains in both bullish and bearish trends.

History of the JPY: From 1871 to today

The Japanese currency officially began its journey on May 10, 1871, following the approval of a monetary law during the Meiji period. The same decree established the division of the yen into 100 sen and 1,000 rin, similar to how cents work in other currencies.

The Bank of Japan (BoJ), responsible for issuing these yen, was established later in October 1882 under the mandate of Finance Minister Masayoshi Matsukata. Since then, the BoJ has played a crucial role in currency stability.

Today, the yen represents the third most important international reserve currency, only behind the US dollar and the euro. This ranking is no coincidence: it reflects global confidence in the strength of Japan.

Why yen act as a safe haven asset

There is a fascinating characteristic of this currency: during global financial turbulence, yen tend to strengthen while other currencies weaken. What is it due to?

Five fundamental reasons:

Japan has historically maintained a consistent trade surplus, strengthening its internal economic position.
Interest rates in Japan have remained low for decades, facilitating borrowing and investment.
Japan’s worldwide reputation as an orderly and stable nation generates confidence in the yen.
The country has demonstrated a historical capacity to control inflation, creating positive future expectations.
Japanese investors have the habit of repatriating capital during international crises, generating internal demand for yen.

Three crises that tested the strength of the JPY

The tech bubble (2000)

The NASDAQ index went from nearly 5,000 points in March 2000 to just 1,400 shortly after: a -72% drop in months. While panic took over the tech markets, the yen showed relative stability.

The financial crisis (2008)

This was the true moment of glory for the JPY. When the collapse of subprime mortgages and Lehman Brothers’ bankruptcy unleashed chaos, the S&P 500 collapsed by -58%, falling from 1,600 points to 666. During this period, from June 2007 to October 2011, the yen appreciated by +64% against the US dollar.

The COVID pandemic (2020)

Although the fall was abrupt and lasted less than a month, the S&P 500 dropped by -35%. Yen again resisted better than other currencies, albeit with considerable volatility.

Recent behavior of the JPY: 2022 in perspective

During 2022, the US dollar appreciated consistently against the yen, mainly because the Federal Reserve raised interest rates while the BoJ maintained its loose monetary policy (with rates at -0.10% since 2016).

However, starting in October 2022, something changed. When rumors began about a possible slowdown in Fed rate hikes, the yen started to revalue. Additionally, the BoJ implemented currency buy-sell operations in September 2022, selling dollars and buying yen to counteract a depreciation that had reached -51% since 2011.

What moves the yen’s price: Key factors

Elements that strengthen the JPY:

Improvements in Japan’s GDP growth forecasts
Increase in Japanese exports
Greater liquidity of yen in circulation by the BoJ
Rising demand from its main trading partners (China, US, South Korea, Hong Kong)
Positive reports from the Tankan index of economic health

Elements that weaken the JPY:

Deterioration of Japanese economic prospects
Problems with key trading partners
Overselling of yen in international markets
Economic stimulus injections based on liquidity
Memories of the 1990 real estate crisis, which still affects confidence

Trading with yen: Volatility and opportunities

The USD/JPY pair is one of the three essential pairs in Forex, along with USD/EUR and USD/GBP. What makes it special is its consistent volatility, which allows identifying opportunities in both bullish and bearish markets.

Precisely because of this volatility, anyone trading with leverage in yen must do so with discipline and rigorous risk management. Sharp movements can amplify gains but also losses.

Conclusion

Yen earned its status as a preferred currency not by chance but on its own merits. Behind the JPY is a strong economy, reliable institutions, and a proven history of stability during turbulence. For traders, it represents one of the most interesting assets: volatile, liquid, and with real profitability options.

The final advice is to start trading on a demo account before implementing real strategies, gradually increasing leverage as you gain experience. The yen deserves the respect given by the markets.

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