GBP/JPY

The GBP/JPY currency pair refers to the exchange rate between the currency of the UK (GBP, GBP) and the currency of Japan (JPY, JPY). The exchange rate is the price of one currency for another currency. For example, if the pound/yen exchange rate is 174.465, this means that 1 pound can be exchanged for 174.465 yen. The GBP/JPY currency pair is an important trading pair in the foreign exchange market, the world's largest financial market with trillions of dollars in trading volume every day. Forex traders often refer to different currency pairs using abbreviations, such as GBP/JPY, or nicknames, such as "Dog Pound" or "Jeep. 

Factors Affecting GBP/JPY

The exchange rate of the GBP/JPY currency pair is affected by a variety of factors, which can be divided into economic factors and non-economic factors. Economic factors include interest rates, inflation, economic growth, trade balance, etc. between the two countries; non-economic factors include political events, market sentiment, speculative activities, etc. These factors will have different impacts on the exchange rate, as follows:

Interest Rate

Interest rates are one of the main factors that influence exchange rates because they affect the flow and demand for funds. Generally speaking, when one country's interest rates are higher than another country's, that country's currency will appreciate because it can attract more foreign investment into the country, increasing the demand for that country's currency. Conversely, when one country's interest rates are lower than another country's, that country's currency will depreciate because it prompts more domestic capital to flow out of the country, reducing demand for that country's currency. For example, if interest rates in the UK are higher than those in Japan, the pound will appreciate relative to the yen.

Inflation

Inflation is an increase in price levels that reflects a decrease in the purchasing power of a currency. Generally speaking, when one country has higher inflation than another, that country's currency will depreciate because it means that country's goods and services become more expensive relative to other countries, reducing demand for that country's currency. Conversely, when one country's inflation is lower than another country's, that country's currency appreciates because it means that country's goods and services become cheaper relative to other countries, increasing demand for that country's currency. For example, if inflation in the UK is lower than inflation in Japan, the pound will appreciate relative to the yen. 

Economic Growth

Economic growth refers to the increase in production and consumption in a country or region, which reflects the vitality and development level of an economy. Generally speaking, when the economic growth of one country is higher than that of another country, the currency of that country will appreciate because it shows that the country has stronger production and consumption capabilities, attracting more foreign investment and export demand, increasing the demand for national currency. On the contrary, when the economic growth of one country is lower than that of another country, the country's currency will depreciate because it shows that the country has weaker production and consumption capabilities, loses more foreign investment and export demand, and reduces the country's currency. needs. For example, if the UK's economic growth is higher than Japan's, the pound will appreciate relative to the yen.

Trade Balance

Trade balance refers to the difference between a country or region's exports and imports, which reflects an economy's trading relationship with the outside world. Generally speaking, when a country has a trade surplus, that is, when exports are greater than imports, the country's currency will appreciate, because it means that the country has more foreign exchange earnings, increasing the supply of the country's currency. On the contrary, when a country has a trade deficit, that is, when its exports are less than its imports, the country's currency will depreciate because it means that the country has more foreign exchange expenditures, increasing the demand for the country's currency. For example, if the UK has a trade surplus and Japan has a trade deficit, the pound will appreciate relative to the yen.

Political Event

Political events refer to major political changes or conflicts that occur in a country or region, and they may affect the stability and credibility of an economy. Generally speaking, when political turmoil or uncertainty occurs in a country, the country's currency will depreciate because it will trigger panic and risk aversion among investors and markets, leading to capital outflows from the country and reducing the value of the country's currency. need. On the contrary, when political peace or stability occurs in a country, the country's currency will appreciate because it will enhance the confidence and risk appetite of investors and markets, leading to capital inflows into the country, increasing the demand for the country's currency. For example, if the Brexit process encounters difficulties or delays, and the Japanese government remains prudent or reforms, then the pound will depreciate relative to the yen.

Market Sentiment

Market sentiment refers to the expectations and attitudes of investors and the market for future development, which may be affected by various information and news. Generally speaking, when market sentiment is optimistic or positive, investors and markets tend to pursue higher returns and risks, which promotes demand for currencies with high interest rates and high inflation. Conversely, when market sentiment is pessimistic or negative, investors and markets tend to pursue lower returns and risks, which promotes demand for currencies with low interest rates and low inflation. For example, if the market is optimistic or positive about the UK's economic outlook and pessimistic or negative about Japan's economic outlook, then the pound will appreciate relative to the yen.

Speculation

Speculative activities refer to the behavior of investors and the market to buy, sell or arbitrage based on predictions of future exchange rate changes, which may have a short-term impact on the exchange rate. Generally speaking, when speculators are bullish about a currency's prospects, they will increase demand for that currency, pushing up its price. Conversely, when speculators are bearish about a currency's outlook, they will reduce demand for that currency, driving down its price. For example, if speculators predict that the Bank of England will raise interest rates and the Bank of Japan will leave rates unchanged, they may buy pounds and sell yen, causing the pound to appreciate relative to the yen.

How to Invest in GBP/JPY?

1. Understand the fundamentals. The trend of the GBP/JPY currency pair depends largely on factors such as interest rate differentials, trade balance, growth prospects, and inflation levels between the two countries. Generally speaking, when the British economy performs strongly and interest rates rise or are expected to rise, the pound will appreciate; conversely, when the Japanese economy performs weakly and interest rates fall or are expected to fall, the yen will depreciate. Therefore, investors should pay attention to economic data, policy changes, political events, etc. from the two countries and their impact on the currency pair.

2. Make use of technical analysis. The movement of the GBP/JPY currency pair is also driven by technical factors such as trends, support and resistance, patterns, indicators, etc. Investors can use technical analysis tools to identify entry and exit points, set stop losses and take profits, etc. For example, investors can use moving averages to determine the direction and strength of trends, Bollinger Bands to determine volatility and excessive buying and selling, and the Relative Strength Index (RSI) to determine momentum and turning points, etc.

3. Consider time difference and trading volume. The trading hours of the GBP/JPY currency pair cover the three major markets of Asia, Europe and North America, so there are different time periods and trading volumes. Generally speaking, when two markets are open at the same time, trading volume increases and volatility increases. For example, between 5 pm and 11 pm Beijing time, it is a time period when the European market and the North American market are open at the same time. At this time, the trading activity of the pound/yen currency pair will increase, and large fluctuations or emergencies may occur. Therefore, investors should choose a suitable time period for trading based on their risk tolerance and trading goals.

4. Manage risk and emotions. The GBP/JPY currency pair is a high-risk, high-reward investment that may bring huge profits or losses. Therefore, investors should strictly manage their risks and emotions, avoid excessive greed or fear, abide by their own trading plans, and do not change or cancel stop loss and take profit at will. In addition, investors should also allocate their funds reasonably and not over-leverage or exceed their tolerance to avoid heavy losses due to one mistake.

Conclusion

The historical exchange rate of the GBP/JPY currency pair has fluctuated and changed many times. Since 1971, the highest exchange rate for this currency pair occurred in October 1972, reaching 1014.00; the lowest exchange rate occurred in March 2011, at only 116.83. In the past ten years, the currency pair's exchange rate has fluctuated between 150 and 200, affected by events such as Brexit, the Japanese earthquake, and the new crown epidemic. The GBP/JPY currency pair is a trading pair with challenges and opportunities that reflects the relationship between two important and different economies. Understanding the characteristics and influencing factors of this currency pair can help investors make better decisions and strategies.