More specifically, it describes how many Japanese Yen are required to purchase a single New Zealand Dollar on the global marketplace, as both are free-floating currencies. For example, if NZD/JPY is currently trading at 78.00, then it costs 78 Japanese Yen to purchase one New Zealand Dollar.
New Zealand and Japan represent two of the most exciting economies on Earth, with the NZD/JPY offering a level of diversification that few other minor pairs can offer. Read on to find out what you need to know about NZD/JPY forex trading.
What is NZD/JPY Forex Trading?
If you’re keen to find out exactly what it means to trade NZD/JPY on global currency markets, you have come to the right place. When looking at the trillions of dollars worth of currencies that are traded every single day, NZD/JPY does not factor in very prominently.
Although the Japanese Yen is the world’s third most widely held reserve currency and is especially popular among forex traders as a means of facilitating cheap carry trades, NZD/JPY is simply not a very well-known pair. The New Zealand Dollar is the currency of New Zealand, arguably the world’s most stable and prosperous economy right now.
Although the NZD rarely features in baskets of global reserves, it is actually a very widely traded currency and its value tends to be strongly affected by forex trading activity. This is why trading NZD/JPY has a lot of advantages, which we will explain in greater detail down below.
History of the NZD/JPY Forex Pair
The New Zealand Dollar is the official legal tender and currency of New Zealand, as well as the Pitcairn Islands, Cook Islands, Tokelau, and Niue. Before the introduction of the New Zealand Dollar, the country’s currency was the New Zealand Pound, which had been pegged to the British Pound Sterling (GBP) and formed a member of the Sterling Area.
The NZD was introduced in 1967 and was pegged to the US dollar at NZ$1 = US$1.43. Following the collapse of Bretton Woods, the NZD became a free-floating currency and went through several periods of immense volatility, which has contributed to its popularity as a trading currency. Today, the NZD is the tenth most traded currency in the world, despite barely appearing at all in global currency reserves.
The Japanese Yen, meanwhile, was borne out of an attempt to unite the fragmented economy of Meiji-era Japan back in 1871. In one fell swoop, the dozens of metal-based currencies circulating throughout Japan were replaced with one currency, which was initially valued on Spanish pieces of eight.
Today, the Yen is a cheap currency that is immensely popular with forex traders, especially those that have a lot of exposure to Asian markets. It is an equally volatile currency that is strongly influenced by the heavy-handed policies of the Bank of Japan.
There are many benefits of NZ/JPY forex trading, such as:
- Analysing NZD/JPY is simpler than major pairs such as USD/EUR as there is less data out there, allowing you to streamline your approach
- Largely immune from US/EU economic news, making this a good way to insulate your portfolio
- Ideal for those looking to gain some exposure to Asian currency markets
- Strong volatility means that potential gains can be high
Factors that Influence NZD/JPY
Myriad factors influence the daily ups and downs of NZD/JPY, including:
- Prices of major commodities that New Zealand exports such as wool, milk, and meat
- Japanese inflation data, interest rates, and labour market data
- Any major economic developments coming out of China
- Any major policy announcements from either the Bank of Japan (BOJ) or the Reserve Bank of New Zealand (RBNZ)
The Role of NZD
New Zealand is one of the wealthiest and most stable economies in the world, with the main drivers of growth being the export of commodities such as wool, milk, and meat.
Crucially, New Zealand and the NZD are among the most isolated major economies in the world and are, in many ways, largely insulated from global economic sentiment.
This is what makes NZD such a unique currency to have in your portfolio and why the NZD is one of the most heavily traded currencies on Earth.
The Role of JPY
As the third most widely held reserve currency in the world, the JPY has a hugely important role in the global economy. Japan is the world’s third-largest economy after the US and China, as well as a high-tech manufacturing powerhouse and a titan of global finance.
The Japanese economy and the Yen us influenced by and influences economic trends in Asia, Europe, and North America. Essentially, it is the polar opposite of the NZD.
Strategies on forex trading NZD/JPY
To put it simply, NZD/JPY is not like other currency pairs. Therefore, forex traders will benefit from keeping some crucial NZD/JPY strategies in mind, such as:
- Trade during peak hours to avoid common liquidity issues with this pair
- Keep an eye on commodity prices such as wool and milk as these have a huge impact on NZD/JPY
- Do not pay too much attention to classic fundamentals such as US GDP data, as this will not have a major impact
- Always have a rigid stop-loss and exit strategy in place to reduce losses on this volatile pair
When to Buy or Sell NZD/JPY
Knowing when to buy and sell NZD/JPY first requires an understanding of when the best hours to trade are. As a minor currency pair, NZD/JPY suffers from a lack of liquidity at many times of the day, meaning that you might not be able to buy and sell exactly when you want.
To avoid this, you should try and trade NZD/JPY during peak market hours when both currencies are widely available. This is when markets in Tokyo and Wellington are both open, which is 10 pm to 6 am GMT for UK traders.
Now, let’s go through an example. Let’s say that Japanese GDP data is due to show a substantial drop, while New Zealand GDP data is expected to remain robust.
In this case, you would want to hit BUY on NZD/JPY, as you are anticipating that the value of the NZD is due to rise against the JPY. When this price rise does occur, you can then hit SELL on NZD/JPY to pocket the difference.
How to Trade NZD/JPY
Although NZD/JPY is a minor currency pair, trading is relatively simple and straightforward. Liquidity can sometimes be an issue, but as long as you trade during busy hours this should not be a problem.
While there is less data out there on NZD/JPY than there is with other currencies, a quality forex brokerage platform will offer all of the in-depth and up-to-date market analysis that you need to make informed trades.
That’s why having a trusted and licensed UK forex broker is the essential first step to a successful NZD/JPY forex trading experience.
NZD/JPY is one of the most immensely volatile pairs out there, owing partly to the fact that traders really, really love to speculate on the price of NZD, even to the extent that policymakers in NZD have tried to act against this.
Meanwhile, the JPY has always been synonymous with volatility. Therefore, profiting from NZD/JPY forex trading requires a savvy ability to predict when those dramatic price swings will occur throughout the day and which direction they will go in.
Close Your Position to Take a Profit or Cut a Loss
As with any form of real-money financial trading, knowing when to cut your losses and get out is essential. When day trading forex, a single sudden market shift can wipe out an entire day’s worth of profits.
That is why you should always have a stated exit strategy and ensure that your broker places a stop-loss on your account so that you can automatically close your position if your losses reach a certain point.
Chose a Broker & Open an Account
When trading a major currency pair such as NZD/JPY, choosing a trusted and licensed broker is 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.
While NZD/JPY forex trading has many advantages, there are also acute trading risks that you need to be aware of, such as:
- NZD/JPY often comes with a severe lack of liquidity, meaning you might not be able to buy and sell exactly when you want to
- Brokers may charge wider spreads on NZD/JPY as a result of this restricted access
- The high volatility can be a good thing, but it also means that daily profits can be wiped out
NZD/JPY is an immensely exciting currency pair that offers a unique level of insularity against major pairs. If you’re looking to diversify your portfolio and trade a currency pair that offers something different, NZD/JPY is the one for you.