How to trade USD/JPY for beginners
Reading time: 15 minutes
According to the Bank for International Settlements (BIS) graph below, behind the US dollar (USD) – the most widely traded currency in the world – the euro (EUR), and emerging market economy currencies (EME), the Japanese yen (JPY) is the fourth-most-traded currency in the foreign exchange market (‘Forex’ or ‘FX’). Additionally, the BIS shows that the USD/JPY currency pair is the second-most-traded currency pair in the world, closely followed by the EUR/USD Forex pair.
The USD/JPY serves to provide the exchange rate between the USD and the JPY, reflecting the value of the USD ‘in terms’ of the JPY. Interestingly, the pair accounts for a notable share of the entire turnover in the OTC FX markets, which averaged nearly US$10 billion per day in April 2025, as shown below.
Getting to know the USD/JPY
I am often asked what the best currency pairs are to trade as a beginner, and my answer is always the same: trade the pairs that offer a healthy combination of liquidity (plenty of buyers and sellers in the market) and volatility (we need the market to move in order to trade). The USD/JPY provides both high liquidity and volatility, and because it is one of the most heavily traded currency pairs, you are never short of research to read.
As I briefly described above, USD/JPY reflects how much 1 USD is valued in JPY. What often confuses a new FX trader is how to read an exchange rate. Fortunately, it is rather straightforward. The first currency listed in the pair is frequently referred to as the ‘base’ currency, while the second currency is the ‘quote’ or ‘term’ currency. For me personally, understanding what they both mean is important. The base is always valued at 1 unit, while the terms currency tells you how much that 1 unit is worth in ‘terms’ of JPY. Also important is that the base currency never changes; it is the term currency that fluctuates in the Forex market. So, suppose USD/JPY is trading at ¥120.00; this means 1 USD is worth 120 JPY.
With an understanding of the above, when trading Forex, you always buy or sell the base currency. If you think the USD will strengthen versus the JPY, you buy (commonly referred to as ‘going long’) that currency pair, expecting the USD to strengthen and the JPY to weaken. Conversely, if you expect USD weakness, you sell the pair (‘going short’), hoping that USD weakens and JPY strengthens.
While this structure is simple, the logic underpinning decisions about whether to go long or short a market requires a layered understanding of not only the US and Japanese economies but also the biases of their central banks and market sentiment. On top of that, to trade successfully, you will need sound knowledge of risk management and an understanding of the trading mindset required to operate as objectively as possible when taking on risk.
What moves the USD/JPY?
Rate differentials
Arguably, the single most important driver of market sentiment in FX is rate differentials; that is, the difference in rates between the two central banks of the pair you are trading. In this case, it is the US Federal Reserve (Fed) and the Bank of Japan (BoJ) for the USD/JPY. Differences between these rates and expected changes in the central bank’s bias can establish long-term trends in this market. If a central bank is hawkish (higher rates), it is pursuing a tightening cycle, typically designed to curb inflation and slow economic growth. On the other hand, a central bank embarking on a dovish rate path (lower rates) suggests it is attempting to stimulate economic output and bolster the labour market.
If the Fed is pursuing higher interest rates, US assets tend to become more attractive to global investors as they offer a higher yield (return). Capital flows into the USD, pushing USD/JPY higher. Conversely, when the Fed cuts rates, the USD tends to weaken.
Japan's situation has historically been unusual. For decades, the BoJ kept interest rates near zero or even negative as part of its efforts to stimulate a sluggish economy and fight deflation. This created a persistent interest-rate differential that favoured the USD, which is one reason USD/JPY has largely been entrenched in an uptrend since 2013. When that differential narrows either because the Fed cuts or because the BoJ raises rates, this can represent a notable headwind for the currency pair.
Economic data
Economic data is the next key catalyst behind USD/JPY volatility. Central banks respond to these data, and it is monetary policy that ultimately creates those longer-term trends described in the previous section.
Forex traders tend to focus on tier-1 economic indicators, including employment, inflation, and growth.
The US employment report (‘non-farm payrolls’) is one of the largest economic events each month, usually released on the first Friday of every month. It provides a wealth of information, including job growth in both private and public sectors, the unemployment rate, and wage growth.
Inflation metrics are monitored closely in both the US and Japan. CPI (Consumer Price Index) data is a widely watched release, with Japanese officials focussing on Tokyo CPI.
Finally, GDP (Gross Domestic Product) growth data is also closely watched by markets, but I must highlight that I find employment and inflation metrics tend to take precedence over growth data due to the Fed’s dual mandate of maximum employment and stable prices.
Traders tend to follow the stances from the Fed and BoJ, and any indication of future rate moves in the data can send USD/JPY sharply in either direction.
Risk sentiment
The JPY has a longstanding reputation as a safe-haven currency. When global investors are nervous – which can happen during financial crises, geopolitical events, or periods of extreme uncertainty – they tend to buy the JPY, pushing USD/JPY lower.
Why the JPY is considered a safe-haven asset is down to the country’s position as a net creditor – meaning Japanese citizens own more assets abroad than foreigners do in Japan. The country’s current account is positive, despite having a trade deficit.
Japan has historically maintained some of the lowest interest rates in the world, making the JPY a popular funding currency for carry trades – where investors borrow cheaply in JPY and deploy capital into higher-yielding currencies like the USD. When those trades unwind, however, the JPY can strengthen sharply and quickly.
Additionally, as I mentioned at the beginning of this article, the JPY boasts high liquidity, enabling large transactions suitable for institutional investors.
When risk appetite is strong, the yen tends to weaken, and USD/JPY rises. This relationship means that events such as a stock market crash, a major geopolitical conflict, or a banking crisis elsewhere can influence this pair, even if they have nothing to do with the US or Japan. However, it is worth noting that as of early 2026, the JPY has demonstrated signs of losing some of its safe-haven status, given that the BoJ is expected to continue raising rates amid higher inflation.
Technical analysis: Reading the candlesticks
If you have followed my work before, you will know I am a big fan of combining macro with technical analysis. Macro tells you why a currency pair moves the way it does, and technical analysis helps determine when to act. Of course, it is beyond the scope of this article to detail all the technical tools traders use; therefore, I will show you one technique I use to apply support and resistance. It is beginner-friendly and easy to understand.
Ultimately, one approach I follow widely involves opening levels. The core idea is that we work our way down from yearly opening levels to 6-month opening levels, 3-month opening levels, and finally, monthly opening levels. We then switch to the daily timeframe and trade directly from this chart (offering more of a swing or position-trading perspective), or you may want to switch to a lower-timeframe chart and trade following a breakout or rejection of daily levels.
Do not overcomplicate this.
As shown below, start with the yearly chart and apply logical yearly opening levels:
Then apply the 6-month levels:
Subsequently, do the same on the 3-month chart, then on the monthly chart, then drill down to the daily, and you should get something similar to the chart below. You can see that daily price action recently broke back above 3M and 1Y resistance levels, with the latter recently being retested as support, and demonstrating scope for further outperformance to resistance between ¥158.71 and ¥158.49 (1M and 1Y resistance levels).
Beyond the strategy: The three pillars of trading
Unfortunately, many new traders believe that all you need to do to succeed in the FX market is have a strategy, and the rest will take care of itself. That is not the case. A strategy, however well back-tested and forward-tested, is just one piece of the puzzle.
To trade successfully, one needs a unique skill set, including a clear grasp of risk management and a firm understanding of trading psychology. People are naturally uncomfortable with taking on risk and accepting when they are wrong – yet in trading, both are unavoidable. It is easy to overlook these two components and focus on strategy, but ignoring them can be a costly mistake.
Together, strategy, risk management, and psychology form the foundation of a sound trading plan, which is your blueprint for navigating and trading the USD/JPY and global markets.
Start trading: Practical next steps
If I were starting over, I would have studied trading psychology first and foremost. I learned this the hard way and know the benefits of a trading mindset. You must understand that trading is not about being right or wrong, and that you will be wrong on some trades – this is just part of the business. Following this, I would conduct thorough research on risk management. Once you have a solid grounding in both, you can begin exploring strategy.
I always recommend opening a demo account when learning about trading psychology and risk management. While a demo does not reflect the psychological conditions faced in a live account, it does help provide you with a blueprint for what trading can look like if you learn to control emotional forces. You can then also use the demo platform to familiarise yourself with your trading strategy and begin testing it to see if it has an edge.
Spend at least three months trading on demo before risking any real capital. Use this time to practise your strategy, get comfortable with your broker's platform, and track your results. If profitable, you can consider trading with a small live trading account and gradually build your understanding of trading while managing risk. Once confident and consistent on a small live platform, you may want to increase your equity and continue to gradually build your account while becoming accustomed to taking on risk.
Trading profitably is a skill that takes years to develop fully. The traders who succeed long-term are not the ones who make the most aggressive moves in the early stages. They are the ones who manage risk carefully, learn consistently, and stay in the business long enough to develop genuine expertise.
My final thoughts
The USD/JPY is considered by many to be a good starting pair; it is well researched, highly liquid, and provides enough volatility to trade.
But no amount of knowledge replaces the experience of watching the market in real time, managing your emotions through losing streaks, and gradually refining your strategy based on what the market actually does. Start on a demo account, study, manage your risk, and approach the market with humility. The USD/JPY pair has humbled many experienced traders over the years, so respect it, and it can become one of the most rewarding markets to trade.
Written by FP Markets Chief Market Analyst, Aaron Hill
