CM Trade

Download APP to receive bonus

GET

Analysis of Japanese yen and Taiwan dollar

2022-08-02
5413
The yen is no stranger to many, having been seen as the face of Asia for decades (even with the renminbi outperforming). In March 2022, the continuous and sharp decline of the Japanese yen exchange rate also caused a large number of investors (especially investors from East Asian countries such as Taiwan and Thailand) to start gearing up and want to enter the market to invest in Japanese currency.

Do you want to invest in Japanese Yen? Do you know when is the best opportunity to invest in Japanese Yen? Today we will decipher the way to invest in the yen for investors.

Introduction to Japanese Yen


The Japanese yen is the currency issued by the Japanese government, referred to as: JPY. In the investment market, the yen is second only to the U.S. dollar and the euro in terms of trading volume, and the yen has always acted as a safe haven during the global downturn.

In 1897, the Japanese government issued the Currency Law, which officially determined that one yen is equal to 750 milligrams of gold. Currently, there are 1,000, 2,000, 5,000, 10,000 yen notes and coins of 1, 5, 10, 50, 100, and 500 yen in circulation. In addition to the Japanese yen currently used in Japan, the Japanese yen is also regarded as a recognized legal tender in Myanmar in Southeast Asia.

Why buy Japanese yen


Many people may think that foreign currency needs to be exchanged only when traveling abroad, but as everyone knows, many people have already used foreign currency for investment. Sell ​​when it increases in value and make a profit on the difference. In order to keep their savings from depreciating due to inflation, many people turn their attention to the yen. The following paragraphs are the reasons for investing in the yen:

  • ultra-low inflation


Image source: Worlddata

Since the early 2000s, Japan has maintained ultra-low inflation, given the Bank of Japan's low interest rates. In the chart above, the inflation rate in the United States is in red, while the inflation rate in Japan is in green, which is -0.2% in 2021. This also means that the value of the Japanese currency is more stable in the market.

  • An important tool for hedging the US market


Image credit: Bloomberg

The yen has long been considered a barometer for the U.S. market. When the U.S. market is weak, USD/JPY will weaken, and vice versa (the S&P 500 index of U.S. stocks in blue, and the USD/JPY exchange rate in red). Therefore, many investors will add the Japanese currency to their investment portfolio as an important tool for hedging the US market.

Is it a good time to buy Japanese yen?


As we all know, due to the impact of the Uzbek-Soviet war on Japanese energy imports and the frequent interest rate hikes by the Federal Reserve, the exchange rate of the Japanese currency has fallen sharply this year. So is 2022 a good year to invest in Japanese currency? For this question, we will judge from two aspects. 1. Analyze the historical data of Taiwan dollar and Japanese currency exchange rates. 2. Our analysts' forecasts for the exchange rate of the Japanese yen and the New Taiwan dollar in 2022.

Japanese Yen vs Taiwan Dollar




Image credit: Exchangerates

We need to know whether it is expensive or cheap to exchange Taiwan dollars for Japanese yen now? According to the figure above, the exchange rate of Japanese yen to Taiwan dollar on July 30 is: 0.225286, (1 yen = 0.225286 New Taiwan dollar). The Japanese yen against the Taiwan dollar has shown a continuous downward trend in the past 5 years, but the increase and decrease have remained between 0.1.

In July 2021, the price of Japanese yen to Taiwan dollar was 0.254623, which means that a year ago, it would cost NT$254 to replace 1,000 yen, but now it only costs NT$225. From this point of view, it seems that the yen is not a long-term investment worth holding.

Japanese yen to Taiwan dollar forecast


Although the Japanese currency is stable, the exchange rate of the Japanese yen to the Taiwan dollar is still in a downward trend. This year, the lowest price of the Japanese yen to the Taiwan dollar has appeared: 0.21531 (July 14) This is the lowest price of the Japanese yen to the Taiwan dollar in the past ten years. This is mainly attributable to the Japanese government's austerity policy on the economy and the rising prices brought about by the war.



Image credit: TardingView

There is no denying that the JPY took a hit in the second quarter of 2022, and we think this trend will continue for some time.

The above picture shows the trend and indicators of the Japanese yen/Taiwan dollar in the past six months. We can see that the MACD oscillator still maintains a downward trend and has an intersecting trend; while the RSI indicator has a clear upward trend. On July 18, the RSI A drop to 20 is a clear sign of a reversal of momentum.

From a technical point of view, we believe that the exchange rate of Japanese yen to Taiwan dollar will show an upward trend for a period of time.

Events affecting the yen exchange rate in 2022


If you want to analyze the worst performance of global currencies in 2022, in addition to the Russian ruble, it is the Japanese yen. Generally speaking, there are many factors that cause currency depreciation. Today, we will detail the events affecting the yen exchange rate in 2022 for investors.



Image credit: TardingView

  • Urussian War
In the month after Russia invaded Ukraine on February 24 (March-April), the yen depreciated nearly 8% against the Taiwan dollar, a sharp fall in the value of the yen amid the military conflict between Russia and Ukraine Conventional perceptions of the yen's status as a safe-haven asset run counter to this.

The yen typically retains its value during times of global financial crisis and heightened geopolitical tensions. However, the war between Russia and Ukraine, key exporters of energy and food, has exposed the structural vulnerabilities of the Japanese economy, exacerbating the yen's woes.

  • Fed's rate hike boosts dollar
On the face of it, one of the main reasons for the yen's weakness in May-June stemmed from the widening monetary policy divergence between the Bank of Japan and its main peers. The Bank of Japan doubled down on its accommodative stance at a time when the rest of the world, led by the Federal Reserve, was aggressively raising interest rates to curb soaring inflation.

As mentioned above, the yen and the US market are negatively correlated, and when the US market is booming due to interest rate hikes, the yen will naturally fall.

  • Japanese political events
On July 8, the death of former Japanese Prime Minister Shinzo Abe in a shooting directly caused the Japanese currency to plunge. On July 14, the exchange rate of the Japanese currency against the Taiwan dollar fell to an all-time low: 0.21531.

Ten-year trend of yen exchange rate




Image credit: TardingView

We once published a report: Is it a good time to buy Japanese currency? Analysis and forecast of the yen's trend in 2022, which details the trend and analysis of the yen at different stages in the past ten years. Of course, it is not difficult to find from the chart above that the yen exchange rate for Taiwan dollar has generally shown a downward trend, but the decline has remained within the range of 0.1. This also supports the characteristics of the yen's stability.

How does the devaluation of the yen affect Taiwan?


The depreciation of the yen means that less NT dollars can be exchanged for more yen. In the vernacular, the cost of goods imported from Japan has dropped, which is undoubtedly a good thing for individuals and businesses alike. information. In addition, the decline in the exchange rate between the Japanese currency and the Taiwan dollar will help Taiwanese people invest in Japan. In the long run, the cost of investing in Japan will decrease with the depreciation of the Japanese currency.

Of course, the depreciation of the Japanese currency will also cause the price of Japanese products to be more advantageous than those of Taiwan. On the other hand, Japanese businessmen will also suspend investment due to rising investment costs in Taiwan.

How to Invest and Buy Japanese Yen




  • Invest in Japanese Yen ETFs
ETF is short for exchange-traded fund, which is a collective investment in securities. The two most popular ETFs for investing in the yen are YCS, which settles assets by the inverse of the daily performance of the yen in US dollars, and FXY, which is an indicator of the most settled assets using the holdings of yen deposits.

  • Investing in stocks and bonds
Stocks and bonds of Japanese companies benefit indirectly from the yen's movements, and consider buying shares of companies such as Nissan, Toyota, Panasonic or Mitsubishi. If you are also interested in debt instruments, it is recommended to invest in Japanese government bonds, the price of which will reflect the state of the Japanese economy in terms of inflation, GDP growth and interest rates

  • Invest in Yen Futures
Yen futures means buying futures with a fixed expiry and a fixed strike price to speculate on the movement of the yen, or you can use leverage to buy or sell options on a yen futures contract. Of course, yen futures have the risk of forced liquidation and involve leveraged trading, so the risk is enormous.

  • Invest in Japanese Yen Currency Pair CFDs
The abbreviation of the contract for difference is CFD, which means that the parties to the contract agree to pay the difference in the underlying market, while the yen currency pair CFD is based on the trend of the yen and other currencies as the target. On CM Trade, you can invest in USD/JPY, EUR/JPY, GBP/JPY, AUD/JPY, NZD/JPY, CAD/JPY.

Compared to traditional stocks or commodities, CFDs are a more flexible financial instrument. With CFDs, falling markets can be excellent trading opportunities. Investors can take the opportunity to short the Japanese currency through the long-term downward trend of the Japanese currency.

Shorting JPY on CM Trade is easy, when you register and download the trading software, you will see two buttons; 'Buy and Sell'. The latter means that you are short in the market, in other words, you borrow, sell, and then buy back to close the trade. The main motivation behind short selling is to predict that the price of an asset will fall, enabling it to be bought back at a lower price for a profit.

In addition, investing in CFDs on CM Trade does not require stamp duty. If investors engage in traditional stock trading in the UK, they will be subject to 0.5% stamp duty on holding assets, while CFDs on CM Trade do not need to worry about this fee.

Summarize


In general, we believe that the yen is falling steadily, even if the decline is not large, but we still do not recommend making money by holding yen for investment. If you are interested in investing, I think shorting the Japanese currency via CFDs is a great way.

At CM Trade, we have professional analysts to provide investors with first-class information, and there are also many stable investment tools to help investors not miss any trading opportunities.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

Free Access
Daily Trading Strategy
Download Now

CM Trade Mobile Application

Economics Calendar

More

You May Also Like