GBP/JPY Forex Trading

If you see the GBP/JPY abbreviation on your screen, then what you are seeing is a reference to one of the world's most heavily traded forex pairs. GBP/JPY refers to the relative value of the currency of the United Kingdom, the British Pound, against the value of the currency of Japan, the Japanese Yen.

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The GBP is the world’s fourth-largest reserve currency, while the Japanese Yen is the world’s third-largest reserve currency, after the US Dollar at the Euro. Meanwhile, Japan is the world’s third-largest economy, with a GDP of more than $5 trillion. The UK is the world’s fifth-largest economy, with a GDP of $2.9 trillion.

Both are among the world’s most influential and globalized economies, which is exactly what makes them so exciting to trade on the global marketplace. Read on to find out everything you need to know about GBP/JPY forex trading. 

Symbol for GBP: £

Symbol for JPY: ¥

What is GBP/JPY Forex Trading? 

If you want to know what it means to trade the GBP/JPY forex pair on the global markets and why traders choose to do so, you have come to the right place. Forex trading is one of the largest financial activities in the world, with trillions of dollars traded in forex markets every single day.

As a trader, the goal of trading currency pairs is to capitalise on short and medium-term price fluctuations in different currency values; selling or buying with the intention of making a profit.

For example, a day trader might buy GBP/JPY with the intention of selling a few hours later, should the value of the British Pound relative to the Japanese Yen rise enough to offer a profit.

If GBP/JPY is trading at 150, for example, this means that it costs 150 Yen to purchase a single Pound, according to current international market prices.

By buying and selling at the right moment, forex day traders can capitalise on the small, everyday shifts in currency pair values in order to realise significant profits over time.

History of the GBP/JPY Forex Pair 

The British Pound is one of the world’s oldest currencies that is still in circulation, dating back to the eighth-century Anglo-Saxon period.

The Pound has been through many iterations throughout the centuries, as well as being the world’s dominant currency throughout the 17th and 18th centuries, and the de facto currency of international trade and finance until World War One.

Today, GBP is one of the world’s most valuable currencies, but also one of the most volatile, especially since the Brexit result in 2016. 

The Japanese Yen, meanwhile, has been around since 1871, when the Meiji Government brought in a national currency to replace the various forms of Spanish dollars that were in circulation throughout the country at the time.

The Yen has traditionally been one of the cheaper currencies in the region, something that the Bank of Japan has tried to sustain in order to keep Japanese exports cheap and competitive. However, as Japan’s wealth has risen, so has the value of its currency. 

There are many benefits to trading GBP/JPY, such as: 

  • Huge amounts of volatility: GBP/JPY has a massive pip value, which denotes its immense volatility. This is ideal for forex traders looking to capitalise on big market moves. 
  • Tied to market sentiment: GBP and JPY are truly global currencies, with the GBP/JPY pair moving up and down in tune with the broader economy. 
  • Lots of resources: Owing to the immense importance and popularity of GBP/JPY, there is no shortage of places to go for expert analysis and predictions on this pair.
  • Massive liquidity: as one of the most heavily traded and in-demand currency pairs in the world, you will never have a liquidity shortage. 

Factors that Influence GBP/JPY

A large number of factors influence the GBP/JPY currency pair, such as:

  • General market sentiment: as two of the most globalised economies on Earth, anything that affects the general economy will affect the direction of GBP/JPY.
  • Central Bank decisions: the Bank of England and Bank of Japan are hugely important CBs that play a major role in monetary policy. Any announcements by either of these bodies will affect the price of GBP/JPY. 
  • Domestic economic events: as a volatile pair, you need to keep an eye out for political events in the UK, as well as in Japan and both of their neighbouring countries.

The Role of GBP

The Pound Sterling is a free-floating currency and is one of the world’s most important reserve currencies, as well as one of the most valuable. Monetary policy is set by the Bank of England, one of the world’s oldest and most widely-trusted central banks. The fate of the Pound is closely tied to recent political events in the UK, which explains why it has been so volatile in the aftermath of 2016. 

The Role of JPY 

The JPY is the most widely traded and prominent currency in Asia by far, which reflects Japan’s position as a financial and manufacturing powerhouse. Tokyo, alongside London and New York, is widely considered to be one of the “command centres” of the global economy, which also reflects the importance of the Yen in global trade. 

Strategies on forex trading GBP/JPY

When conducting forex trading of any kind, especially if you are trading on margin, it is absolutely essential to have a GBP/JPY forex trading strategy in place. Here are some of the top tips to keep in mind when trading forex on the global marketplace: 

Always have a solid exit strategy and stop-loss in place to ensure that you can instantly exit a trade before you lose too much money, should things go south. 

Do your research and stick to market fundamentals. Make sure to look for any upcoming announcements on UK-Japan economic news from trusted sources.

Always use a trusted and licensed forex broker and avoid brokers that charge large commission fees. 

When to Buy or Sell GBP/JPY

First off, it is important to note that the best time to trade GBP/JPY is when both London and Tokyo markets are open.

This is between 8 am and 9 am GMT, which is when GBP/JPY is at its most liquid, as well as the time when you are likely to see the most significant price movements.

When deciding when to trade GBP/JPY, it is important to use the resources at your disposal to try and determine when price fluctuations are likely to occur.

For example, if you expect that the Bank of Japan is going to reduce interest rates, which may lower the value of JPY relative to GBP, then you would hit BUY on GBP/JPY.

Conversely, if you have reason to believe that a major credit agency like Moody’s is about to downgrade the UK’s credit status, you would hit SELL on GBP/JPY, as it is likely that the value of GBP will fall. 

How to Trade GBP/JPY

Trading GBP/JPY is simple and straightforward; not least because it is one of the most in-demand currency pairs in the world, guaranteeing almost universal liquidity.

To begin trading the Dragon, simply create an account with a trusted online forex broker. A trusted and licensed broker will be able to execute buy and sell orders on your behalf and hold your position, as well as give you professional advice on major forex markets.

Once you have the right broker, you can buy and sell GBP/JPY in real-time, without any barriers. 

Profit with GBP/JPY

As mentioned, GBP/JPY is an immensely volatile pair, especially when compared to other major world currencies from highly-developed economies.

The most important thing to remember is that this volatility is driven largely by general economic and market sentiment, which is why it is crucial to stay informed when trading GBP/JPY.

In addition, remember that the volatility of GBP/JPY means that incremental gains can instantly be wiped out, so make sure to have an exit strategy in place.

Close Your Position to Take a Profit or Cut a Loss 

With forex trading, knowing when to close your position is probably the single most important skill to have. This means knowing when your position has “peaked” and selling at a profit before it dips again.

Conversely, it can also mean knowing when to cut your losses and closing your position before you bleed too much money. It’s a delicate balance that takes time, practice, and taking the time to get right. 

Chose a Broker & Open an Account 

When trading a major currency pair such as GBP/JPY, choosing a trusted and licensed broker is absolutely essential. 

A quality broker will work with expert data and resources to help you make informed trades. They will offer direct market access to allow you to buy and sell at exactly the moment that you want to.

They will hold valid licenses from trusted financial regulatory bodies, to guarantee the safety of your money. To find out which brokers offer all of these crucial elements, make sure to check out our reviews of trusted forex brokers today.

There are some risks and downsides to trading GBP/JPY, such as: 

  • Volatility: although this can also be an advantage, the immense volatility of GBP/JPY makes it difficult to predict and can lead to huge losses. 
  • Huge daily trends: the large fluctuations throughout the day can amplify profits, but it will also amplify losses for traders that are not on the ball. 
  • Narrow trading windows: You can trade GBP/JPY at any time,  but, given the distance between London and Tokyo, the overlap when both markets are open is very slim.

Conclusion

GBP/JPY is one of the world’s most important currency pairs, representing two powerhouses of the global economy and often acting as a litmus test for global economic sentiment.

Given the importance of this pair, it can be a lot of fun to trade, and there is a wealth of financial resources to help you do so. That being said, the volatility of this pair can also be a drawback, which is why traders have nicknamed it the Dragon and, in a more sinister vein, “the widowmaker”.