So, you want to trade the GBP/JPY pair?
If you answered yes, you’ve come to the right place! We’ll teach you everything you need to know about this exciting currency pair.
No more wondering when is the best time to trade the GBP/JPY, what moves this currency pair, or whether it is a good choice for new traders.
This guide will address all of these questions and more.
Following is a table of contents so that you can look around and jump to the topic of your choice.
- What is the GBP/JPY?
- How does the GBP/JPY work?
- What moves the GBP/JPY?
- What is the best time to trade the GBP/JPY?
- Is the GBP/JPY good for beginners?
Let’s start with the first point.
What is the GBP/JPY?
The GBP/JPY is the symbol for the British pound versus the Japanese yen currency pair.
Both the pound and the yen are important currencies in the global economy.
According to the2019 Triennial Central Bank Survey, the yen is the third most actively traded currency in the forex market, with the pound coming in fourth.
Below, we have embedded a real-time GBP/JPY chart from TradingView.
The exchange rate shows how many Japanese yen are required to purchase one British pound.
How does the GBP/JPY work?
The first currency in the quotation is known as the base currency. In this case, it is the British pound. When you buy or sell the GBP/JPY pair, you are buying or selling the base currency.
So, if you buy 100,000 GBP/JPY, you are buying 100,000 pounds and selling the equivalent amount in Japanese yen.
If you sell 100,000 GBP/JPY, you are selling 100,000 British pounds and buying the equivalent amount in Japanese yen.
The second currency in the quotation is called the counter currency. In this case, it is the Japanese yen. The prices on the chart show how much counter currency is needed to purchase one unit of base currency.
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The profits and losses are also denominated in the counter currency.
Remember that when you buy or sell the GBP/JPY pair, you are buying or selling the British pound.
So, when you open a long position on the GBP/JPY, you are buying pounds and paying with yen. If the GBP/JPY rises and you close the trade, you sell your pounds back to yen.
The profit stems from the fact that the pound has increased in value and you received more yen than you sold. That’s why the profit is denominated in the counter currency.
Here’s an example using random numbers:
Similarly, when you open a short position on the GBP/JPY, it means that you sell pounds and buy yen. If the GBP/JPY falls and you close the trade, you buy your pounds back with yen.
Because the pound has fallen in value relative to the yen, you can repurchase the same pounds (that you sold earlier) with fewer yen. The yen remaining in your pocket is the profit.
Don’t worry if you’re confused; everything happens in the background. Your broker will convert the yen into the currency of your account, whatever that is.
What moves the GBP/JPY?
The GBP/JPY involves the currencies of the United Kingdom and Japan, so any event affecting these two countries can have an impact on the pair.
The long-term direction of the GBP/JPY is dictated by the overall status of the UK and Japanese economies.
Many economic theories attempt to predict what the exchange rate should be.
For example, the “law of one price” states that goods and services should cost the same no matter where they are sold. As a result, the exchange rate will adjust until prices in the United Kingdom and Japan are equal.
(This theory is the foundation of the popularBig Mac index.)
While these theories help provide the framework for long-term exchange rate analysis, they are less useful for predicting short-term price movements.
The short-term direction of the GBP/JPY is driven by surprises in key economic data.
To time major price swings, you must know in advance what types of economic data are the most important and have aneconomic calendar to know the precise release date.
Below, we’ll review the types of economic data you will need to follow.
Economic Growth
The gross domestic product, or GDP, is the most definitive barometer of economic activity.
It’s no surprise that the first thing most investors are interested in when examining an economy is the percentage change in GDP from one year to the next.
That is why the GBP/JPY tends to move when the United Kingdom or Japan disclose their GDP figures. The greater the deviation from analyst estimates, the greater the price impact.
In the United Kingdom, snapshots of the current GDP are released each month along with quarterly estimates. Japan publishes only quarterly estimates. To see the most recent releases, visit the following websites:
The final GDP announcement at the end of the year is often not meaningful because there is little chance for surprises at that point thanks to the interim data.
Inflation
Inflation probably needs little introduction.
Everyone knows how bad it can be if prices rise across the economy and the value of your money decreases.
Inflation is an important metric for large investors as well because it erodes the value of bonds.
In forex trading, the importance of inflation stems from its ability to predict interest rate changes.
When the economy is overheating, the central bank is more likely to raise interest rates to combat high inflation.
For example, if inflation in Japan is strong (far greater than in the United Kingdom), traders might expect the Bank of Japan to raise interest rates and begin purchasing the Japanese yen.
This will drive down the GBP/JPY.
It works the other way as well. A high UK inflation report might spark speculation about higher interest rates in the United Kingdom, and the GBP/JPY might rise as a result.
There are various inflation reports, each focusing on a different source of inflation or stage of the economy in which price changes are visible.
The most widely followed is the Consumer Price Index or CPI, which measures the cost of a basket of goods and services at the consumer level. You can check the following reports:
The Producer Price Index (PPI) is also quite popular. It works similarly to the CPI but measures the change in prices at the wholesale level. It has a different name in Japan:
Let’s continue with another piece of important economic data.
Unemployment
Household consumption contributes to around 61% of the UK GDP and 54% of the Japanese GDP. This consumer expenditure is fueled almost entirely by salaries.
Consequently, when people become unemployed, the economy tends to shrink because unemployed workers are forced to tighten their belts as they look for new jobs.
This is why investors are so concerned about unemployment figures.
Both the United Kingdom and Japan report monthly unemployment figures, so expect some volatility on the GBP/JPY chart when the numbers are published.
To check the latest data, visit:
Unemployment is not only harmful to the economy; it is also very political. Unemployed people are more likely to get frustrated with the government and vote the current leader out of power.
Business Confidence
Business confidence is yet another indicator that influences the direction of the GBP/JPY.
Although consumer spending accounts for the majority of the GDP in both Japan and the United Kingdom, individual business executives make considerably larger decisions than individual consumers.
If they feel confident about the economy, they are more likely to engage in cross-border investments and sign contracts with foreign companies.
All these international transactions go through the currency market and, consequently, have an impact on the GBP/JPY, especially when they occur between UK and Japanese companies.
To get a sense of business confidence, look out for industry surveys.
In Japan, the Bank of Japan produces a quarterly survey on business outlooks. This is called the Tankan survey; you cancheck out the latest one here.
In the United Kingdom, keep an eye on theindustrial trends survey. It is a monthly report put out by the Confederation of British Industry on the current and future prospects of manufacturers.
Housing
The last piece of information you want to keep track of is housing.
What does housing have to do with the GBP/JPY?
Although the real estate sector is a relatively smaller contributor to the GDP in both Japan and the United Kingdom, FX traders keep a careful eye on the housing market’s performance.
This is because the housing market is a strong indicator of the status of the economy.
To begin, most people don’t take out a 30-year mortgage unless they have an optimistic outlook for the future.
Second, housing drives consumption in other parts of the economy.
After buying a new house, people buy paint, kitchens, mowers, drapes, furniture, refrigerators, flat-screen TVs, landscaping services … you name it.
This means that housing has a broader impact than you might think.
The following information can help you get a sense of the Japanese and British housing markets:
So, these are the most important types of economic data that move the GBP/JPY. There are many more reports, but they all fall into one of these categories.
Speeches by influential people and random events can also move the pair, but again, these are important because they change expectations in one of the discussed parts of the economy.
What is the best time to trade the GBP/JPY?
The best time to trade the GBP/JPY is when both the UK and Japanese markets are active. This period runs from 3 AM to 5 AM in New York time.
To see what time it is in other parts of the world, you canuse this time zone converter.
Keep in mind that this is just a general guideline.
You already know that news events spark market activity, so it can also be a favorable moment to trade when vital economic data is due to be released.
For example, even if the UK market is still closed, an important release touching the Japanese economy in the Japanese session can impact the pair.
Normally, you should focus on the two-hour overlap between the Tokyo and London sessions, but also keep an eye on your economic calendar. It will highlight when it is worthwhile to be trading the GBP/JPY during other times of the day.
Is the GBP/JPY good for beginners?
The GBP/JPY is one of the most active currency pairs, with an average hourly pip movement of 28.2 (2022).
For comparison, the EUR/USD moves 15.2 pips per hour, the GBP/USD moves 19.2 pips per hour, and the NZD/USD moves 12.8 pips per hour. You can check for any currency pair using thisvolatility calculator.
It won’t make much of a difference if you trade the currency pair on a daily or weekly basis. You will have enough time to consider your trade setups and make trading decisions.
In smaller timeframes, however, volatility becomes more important.
On the one hand, high market activity can benefit beginners by allowing them to gain experience rapidly. However, it can be intimidating at first, so if you’re brand new to forex, you might want to start with a slower-moving pair.
This also depends on your strategy. If you’re looking to be a scalper, a fast-moving pair is a must, and the GBP/JPY will be ideal.
A slower-moving currency pair, on the other hand, might be a better pick if you’re trend trading. It will enable you to take your time and avoid common trading mistakes.
FAQs
The GBP/JPY rate shows how many Japanese yen are needed to buy one British pound. When you buy the pair, you are exchanging yen for pounds. When you sell the pair, you are exchanging pounds for yen.
Focus on the two-hour overlap between the Tokyo and London sessions, but also keep an eye on your economic calendar. It will highlight when it is worthwhile to trade the GBP/JPY during other times of the day.
The GBP/JPY currency pair is one of the most active. This can help you get experience quickly. Start with a slower-moving pair or trade the GBP/JPY over longer timeframes if you want to take your time.
Conclusion
We hope this guide has taught you a lot of useful things about the GBP/JPY.
You’ve learned how to read the exchange rate and are familiar with the key factors that influence this currency pair.
You are also aware that the best time to trade the GBP/JPY is during the Tokyo/London session overlap.