The Forex currency pair, USD/JPY, is one of the most popular currency pairs in the Forex exchange market. Approximately $950 billion daily turnovers are made using this currency pair. Its total turnover is nearly $5.5 trillion. In the USD/JPY currency pair, the base currency is the U.S. Dollar, and the quote or counter currency is the Japanese yen. The pair expresses how much JPY would one need in order to buy one USD. The exchange rate is seldom stable and fluctuates by a few pips. For example, if the current USD/JPY exchange rate is 116.00, it means that you require 116 yen to purchase a U.S dollar.
More About the Two Currencies
To understand how these currencies behave, let’s learn about their history.
The USD came into circulation before the yen. While the former was made available in April 1792, the latter surfaced in July 1871. The yen was made official on June 27, 1871, when the Meiji government. For over 200 years, the USD has been the standard monetary of the US and has been the world’s official reserve currency since 1944 when the Bretton Woods signed the agreement.
USDJPY pip count
How to calculate forex USD JPY pip value?
In the Forex market, pip denotes the point movement in the exchange rate of a currency pair. It is generally the commission that your broker charges from you.
So, how much is one pip USD JPY?
An increase in the forex pair USD/JPY by one pip is 0.01 movement in the price. If traders trade 1 micro lot, 1 pip or 0.01 movement in the price is around 0.1 dollars. If traders trade 1 mini lot, 1 pip or 0.01 movement in the price is around 1 dollar. USD JPY lot size for 1 pip or 0.01 movement in the price is around 10 dollars.
Here is an example of how we can apply forex USD JPY pip value in real trading:
BUY 1 micro lot of USDJPY pair at 110.00. Close trade at 110. 09.
It is 9 pips profit or around 0.9 dollars in profit (exactly $0.8394)
BUY 1 mini lot of USDJPY pair at 110.00. Close trade at 110. 09.
It is 9 pips profit or around 9 dollars in profit (exactly $8.39)
BUY 1 lot of USDJPY pair at 110.00. Close trade at 110. 09.
It is 9 pips profit or around 90 dollars in profit (exactly $83.9).
So why is so complicated to calculate 1 pip of USDJPY forex pair? It is because 1 pip is not equal to $1.
The USD/JPY pip value can be calculated in high accuracy by taking the example of a 1K lot. In this currency pair, the value of one pip in 0.01. This also translates to 1/100 times the JPY. After multiplying it by the 1K lot, that is 100, you get 10 yen. 1 USD is equivalent to 110 yen according to the current exchange rate. We will use the following formula to find out how much is one pip USD/JPY. To find out the value of the dollar against 10 yen at the current exchange use the following method:
$1 = 110¥ (current exchange rate)
10¥/110 = $0.090909 or $0.09
$0.09 is the USD/JPY pip count of a micro lot or the 1K lot as per the current exchange rate. The 1 pip USD/JPY will fluctuate whenever the exchange rate will range but the pip value for a micro lot will always be estimated at 1K = 10 yen. This also portrays that the currencies in a pair are interconnected and if the yen falls, its pair will also fall.
Let’s assume another situation where the JPY depreciates against the USD till the pair trades at 220.00. If this happens, the pip value will become half of where it stands per the current exchange rate (110.00). To make this work, 10 yen will be divided by the new exchange rate (220). This will result in a new pip value of $0.04545.
Many traders and investors face losses because they make those minor calculation errors. You can completely avoid this problem if you are working with a broker who offers a comprehensive trading platform where calculations are made by the AI.
If you want to do it manually, this is how it’s done:
Let’s take an example where you are trading the USD/JPY signal with twelve micro-lots that were bought at 110.00. Let us also assume that this trade made you hit a profit target of 275 pips at the exchange rate o 112.760. 12 micro lots are equivalent to 12,000 of our chosen currency pair. Now, by multiplying the current pip value ($0.090909) with 276 pips we will get $301.09, the incorrect answer. However, we can get the correct answer following the other way.
Take 112.760 as your target price and subtract 110.00, our entry price. The result will give you 2.76 yen. Multiply the result with 12000. This will give you a profit of 33,120 yen. Now, convert this profit from yen to dollars, keeping in mind the depreciated value of the yen. The final tally is $293.72 which is $7.37 less than our previous incorrect calculation.
As the pip value of this pair is very dynamic, we will always get an incorrect take loss or profit if we use the pair’s current pip value for our calculations. We can use the current pip value as an estimate but never as the real value.
To get the exact values, you need to calculate your take profit and loss in JPY and then convert it to USD at the new exchange rate of USD/JPY. The pip value fluctuates when we make the calculations in the USD but it remains the same in JPY. This is why all the calculations should be made in the quote currency.
Lot Size of USD/JPY
While the standard USD/JPY lot size is 100,000, some brokers have the option of smaller lot sizes available. These could be as small as 0.01 lots or 1000 for the currency pair. This lot size is called a micro lot or a 1K lot size.
This might still seem a lot for small traders. Opening a $500 account and to have $1000 available to hold a position can be financially draining. However, you don’t need a standing capital of $1500 as you can use the leverage offered by your broker.
Leverage allows you to operate more capital in the market that you own. Different Forex brokers offer different leverage which generally lies between 1:100 to 1:1000. If Leverage can vary greatly from instrument to instrument and country to country. For example, the U.S. only allows maximum leverage of 1:50.
If your broker has offered you the leverage of 1:50, it would mean that for every dollar that you are investing, you can operate $50 in the market. If you want to buy a micro USD/JPY lot size, you will not need $1000 anymore.
Economic Activities and their Impact on USD/JPY
The value of any currency can never be completely separated from the condition of its respective country. There are numerous economic and non-economic activities that can strengthen and devalue the currency. Here are some economic activities that can directly impact the exchange rate of USD/JPY.
1. Monetary Policies
The monetary policies are the policies set by the central or federal bank of a country. The Federal Reserve of the United States (FED) is responsible for implementing these policies while the Bank of Japan does the same for its country.
Any change made by these two entities with regards to quantitative easing, economic growth forecasts, inflation, and the rate of interest, the currency pair becomes volatile.
2. Economic Indicators
Economic indicators are very important for Forex brokers and traders because they highlight the health of the economy. You can easily find them on the government’s official sites. These indicators tell if the economy is leading, lagging behind, or is stable.
There are many economic indicators but once that directly impacts the exchange rate are the gross domestic product (GDP), interest rate, wage growth, retail sales, consumer price index (CPI), unemployment rate, industrial production, and wage growth. Any fluctuation in these indicators can lead to the appreciation or depreciation of the currencies.
The USD/JPY currency pair is one of the most sought-after pairs in the Forex trading market. However, you must know all about the currency pair before holding any position.