The Japanese yen (JPY) is the official currency of Japan and at the time of writing is the third most-traded currency in the world behind only the US dollar and euro.

The JPY is used extensively as a reserve currency and is relied upon by forex traders as a safe haven currency.

Originally implemented in 1871, the JPY has had a long history and has survived multiple world wars and other events.

This was followed by the creation of the Bank of Japan (BoJ) in 1882 and the full oversight of the JPY by the Japanese government only in 1971.

Japan has historically maintained a policy of currency intervention, continuing to this day.

The BoJ also adheres to a policy of zero to near-zero interest rates and the Japanese government has previously had a strict anti-inflation policy

What Factors Affect the JPY?

The aforementioned role of the BoJ has dramatically shaped the JPY in forex markets. Any further changes in monetary policy by the central bank are closely watched by forex traders.

Additionally, the Overnight Call Rate is the key short-term inter-bank rate. The BoJ utilizes the call rate to signal monetary policy changes, which in turn impact the JPY.

The BoJ also purchases both 10- and 20-year Japanese government bonds (JGBs) on a monthly basis in order to inject liquidity into the monetary system.

The consequent yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates.

Economic data is also very important to the JPY. The most important of these releases in Japan are gross domestic product (GDP), the Tankan survey (quarterly business sentiment and expectations survey), international trade, readings of unemployment, industrial production, and money supply (M2+CDs).

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