Forex Trading Strategies for GBP/JPY | Expert Tips & Advice

Instrument description

In the Forex market, the currencies are always traded in pairs, and the combination of Great Britain Pound with Japanese Yen is given by GBP/JPY pair, where GBP is the base currency while JPY is the quote or counter currency. Both the Pound and Yen are two of the most popularly traded currencies in the world where the JPY is ranked third with nearly 20% trading volume while GBP is right behind at fourth with nearly 13% trading volume. The symbol of the Pound is ‘£,’ and the symbol for Yen is (¥). Although both GBP and JPY are ranked high on the major currencies, list, their pair is called a cross pair.

The GBP/JPY pair tells a trader how many Japanese Yen are required to buy one British Pound. If the current exchange rate of GBP/JPY pair is 132.27, which means one Pound equals 132.37 yen or in other words, a trader would pay 132.27 Yen to buy 1 Pound. In the Forex market, the GBP/JPY pair is known by quite a few names such as ‘Dragon,’ ‘Beast,’ and ‘Geppy.’

The GBP/JPY contributes to a significant percentage of daily transactions in the Forex market. The GBP/JPY is also known as a ‘cross currency pair,’ which means a currency pair that can be used to execute a carry trade, which is a common trading strategy. To execute a carry trade, a trader usually borrows low-interest currency to buy another currency with a high-interest rate; the profit is realized from the underlying difference of interest rate.

History of GBP/JPY Currency Pair

The GBP/JPY pair has always been considered a unique and significant pairing, and a measure on global economic health as British Pound is a dominant currency in Europe while the Japanese Yen is a prevailing currency in the Asia Pacific region. The GBP/JPY pair is considered as a label of ‘cross’ as the pair can be converted directly without the need to convert the currencies in U.S Dollar first.

The British Pound is reckoned as the oldest currency and till the Second World War called the global currency. After the war, the British Pound became part of the Bretton Woods agreement, which was introduced to govern the currencies after the war, which collapsed most global currencies. But, in 1971, the Bretton Woods system collapsed, and many currencies became free-floating currencies, including GBP. The UK economy is based on natural resources such as coal, oil, natural gas, and agricultural goods.

The Japanese Yen is also considered one of the oldest currencies as it was adopted by the Meiji government in 1871. The Japanese currency is probably the only currency that is quoted at two decimal places, while all the other currencies are quoted at four decimal places. Japan suffered heavily in the Second World War but showed a tremendous resurgence in the industrial and technological market. All the famous car manufacturing companies and tech giants we see today, such as Toyota, Honda, Nissan, and Sony, all originate from Japan.

The British Pound has seen many fluctuations during its historic run and is still going strong and ranked among the top four most traded currencies of the world. The U.K.’s decision to leave the European Union (E.U.) in 2016 and then finally leaving at the start of 2020 has resulted in a considerable downward trend for GBP. In June 2016, when the public voted in favor of ‘Brexit,’ the GBP fell from trading at a value of 160.66 to 133.31. The Japanese economy is mostly driven by technological and agricultural exports and influenced heavily due to earthquakes, tsunamis, and hurricanes.

The GBP/JPY pair sees sudden fluctuations due to the energy pricing as Japan is quite reliant on the import of crude oil and natural gas to fulfill its energy requirements. The value of Yen is likely to rise or fall depending on if increases or decrease of energy prices in the global market. The changes in the value of Yen directly affects the exchange rate of the GBP/JPY pair. The GBP/JPY reached an all-time maximum value of 1014.000 on January 1, 1963, and an all-time minimum value of 116.85 on September 16, 2011.

How to Trade GBP/JPY Pair

The GBP/JPY is known for having tight spreads and high volatility, which makes this pair a popular one among both novice and veteran traders. The GBP/JPY pair is open for trading 24/7 from Monday to Thursday. But the best time to trade GBP/JPY pair is from 8.00 AM to 5:00 PM when the market sees high trading volume due to market announcements.

As a trader, among other options you can trade the GBP/JPY pair using Contracts for Difference (CFDs), where you can use leverage and predict the price change of the underlying asset without the need to own the currencies. With leverage you can open a relative larger trading position with a smaller amount in your trading account. Trading CFDs allows you the possibility toto magnify profits, but there are equal chances of losses if the market moves in another direction, so you may want to apply stop lossto minimize the risk of a higher financial loss.

Using CFDs to trade GBP/JPY pair also gives you the option to trade in both directions, which is either going long or short. If you speculate that the Pound would gain in the coming days as compared to Yen, then you would go long or Buy GBP, and conversely, if you think that the Pound would weaken in front of Yen, then you would go short.

How to read the Price Change in GBP/JPY Pair

The GBP/JPY pair is one of the most volatile currency pairs to trade in the Forex market. The regular price movements provide opportunities for traders either to use CFDs or execute a carry trade. The GBP/JPY pair has a positive correlation with the GBP/USD, EUR/USD, and AUD/USD, where USD is the quote currency. The GBP/JPY tends to have a negative correlation with gold and currency pairs that include USD/CHF, USD/JPY, and USD/CAD, where USD is the base currency.

Both the British Pound and Yen shift in value depending on the financial news and monetary policies. The traders mostly used price charts as it provides crucial information about historical and current value. If we see the price chart, the GBP/JPY pair reached the low of 125.411 on May 18, 2020, and a high value of 138.839 on June 5, 2020, and the GBP/JPY pair currently trades on 132.847. The Bid price is 132.825, while the Asked price is 132.819.

What causes price change in the GBP/JPY pair?

The GBP/JPY pair is known for sudden and unpredictable volatility and price movements, and some of the major factors that contribute to it include interest rates, inflation, domestic monetary policy, political events, and Gross Domestic Product (GDP). The central banks of both the U.K. and Japan play a crucial role in making monetary decisions and releasing the fiscal policies that directly impact the value of the individual currencies and the GBP/JPY pair.

The Bank of England (BOE) is one of the oldest central banks and plays a major part in making changes in the monetary policy and finalizing the interest rates. The Bank of Japan (BOJ) also decides on the interest rates, and BOJ is known to apply low-interest rates for many years, and also, a negative interest rate was issued in 2016, which was done to increase the consumer prices. The Japanese Consumer Price Index (CPI) is a key indicator in determining the value of Yen when paired with other major currencies. The interest rates are kept to near zero in Japan, which makes the Yen an ideal option for carry trade and also a ‘safe haven’ for investors in times of global economic crisis.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.