Understanding Japanese Yen Futures
One of the world’s eight major currencies, the Japanese yen (JPY) is viewed as a mainstay of global finance. The Bank of International Settlements Triennial Survey (2019)[1] has the yen involved in US$1.1 billion in average daily turnover on the over-the-counter (OTC) currency markets. This lofty valuation earned the JPY a rank of third, accounting for 17 percent of daily trade.
In addition to its position on the OTC forex markets, the JPY is also traded on the Chicago Mercantile Exchange (CME). Read on for an examination of the Japanese yen FX and to learn more about the basics and key market drivers of Japanese yen futures.
What are Japanese yen futures?
Japanese yen futures are a series of derivatives contracts offered by the CME. They are classified as an FX listing because contract pricing is based on the USD/JPY forex pair. To cater to its diverse clientele, the CME lists the Japanese yen FX in full-sized, E-mini, and E-micro formats.
[1] https://www.bis.org/statistics/rpfx19.htm
Here’s a quick look at the specifications of each contract:
| Full Sized | |
|---|---|
| Symbol | 6J |
| Market | CME Globex |
| Quantity | 12,500,000 Japanese yen |
| Denomination | U.S. dollars and cents per tick |
| Minimum Tick | US$0.0000005 |
| Tick Value | US$6.25 |
| Expirations | Quarterly (March, June, September, December) |
| Listings | Listed for 20 consecutive quarters |
| Settlement | Physical delivery |
| E-mini | |
|---|---|
| Symbol | J7 |
| Market | CME Globex |
| Quantity | 6,250,000 Japanese yen |
| Denomination | U.S. dollars and cents per tick |
| Minimum Tick | US$0.000001 |
| Tick Value | US$6.25 per tick |
| Expiration | Quarterly (March, June, September, December) |
| Listings | Listed for 2 consecutive quarters |
| Settlement | Physical delivery |
| E-micro | |
|---|---|
| Symbol | MJY |
| Market | CME Globex |
| Quantity | 1,250,000 Japanese yen |
| Denomination | U.S. dollars and cents |
| Minimum Tick | US$0.000001 |
| Tick Value | US$1.25 per tick |
| Expirations | Quarterly (March, June, September, December) |
| Listings | Listed for 2 consecutive quarters |
| Settlement | Physical delivery |
When trading yen futures, it’s important to remember that pricing is done in a JPY/USD format. This is the opposite of the popular forex USD/JPY pairing. Although yen FX pricing is a bit nuanced in terms of numerics, it isn’t much different from the USD/JPY when it comes to valuation.
What do you need to know before trading the yen?
Before jumping into the yen FX market with both feet, it’s best to understand what makes the JPY move. Although there may be a wide range of underpinnings driving the yen at a given time, three key market drivers stand out: central banking activity, economic performance, and government policy.
Central Banking Activity
If you’re going to trade yen futures, then it’s critical that you stay abreast of central banking activity. This means monitoring the actions of the U.S. Federal Reserve (Fed) and the Bank of Japan (BoJ).
Events worth watching are official BoJ and Fed announcements, emergency meetings, and public dialogue from members. Perhaps the greatest movers of the Japanese yen FX are monetary policy issues, such as the BoJ or Fed raising or lowering interest rates.
Economic Performance
The relative economic prowess of Japan and the United States is a key market driver of the yen FX. Accordingly, official reports, such as each nation’s gross domestic product, can bring sudden volatility to the USD, JPY, and yen FX.
A group of vital metrics to be aware of when trading yen futures are Japanese export statistics. Japan relies heavily on the export sector for growth, ranking number five globally (US$641.38 billion in 2020) in total exports. Given its trade relationship with the U.S., any dropoff in this area can be a precursor for a weakened JPY.
Government Policy
The policies of the Japanese and U.S. governments can have profound impacts on the yen FX. A few recent examples are COVID-19 fiscal stimulus packages, the movement toward sustainability, and U.S.-Japan trade agreements.
When trading yen futures, it’s important to stay in the loop with the current political news cycle. Breaking news and surprise events can shape governmental policies, and, in turn, JPY/USD pricing.
Are you ready to trade the Japanese yen FX?
Without a doubt, FX futures furnish active traders with many opportunities. Are you ready to capitalize on the action?
If so, a great place to begin is with the StoneX e-book Basic Training for Futures Traders. Featuring lessons on discipline, contract specs, and goal setting, it’s a powerful futures market primer. Before you dive headlong into the yen FX, be sure to download your free copy here.
