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 (2022)1 revealed that the average daily FX turnover in Japan reached $432.5 billion—the highest in the survey’s history2 and a 15 percent jump from 2019’s results. This lofty valuation makes JPY not only the third most traded currency globally but also the third biggest reserve currency—estimated to constitute nearly 5 percent of global currency reserves.3
In addition to its position on the over-the-counter (OTC) forex markets, the JPY is also traded on the Chicago Mercantile Exchange (CME). Read on for an examination of the Japanese yen futures and to learn more about the basics and key market drivers of these investments.
Japanese yen futures (JPY FX) 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.
Here’s a quick look at the specifications of each Japanese yen futures contract:
One important thing to remember when trading yen futures is 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 in terms of valuation.
As with all currency pairs, the value of USD/JPY4 fluctuates based on changes in market conditions, which are discussed in more detail in the next section. Naturally, these changes can be difficult to predict, but the chart below reflects the seasonal trends in USD/JPY returns as of the last five decades:
JPY futures trades on the CME Globex from Sundays to Fridays, 6 a.m.–5 p.m. ET.
The pricing for this type of financial derivatives contract is based on the predicted future exchange rate of the JPY to the USD. This implies that making any sort of profit through yen futures contracts requires its own strategic trading technique—one backed by thorough research surrounding market timing, entry and exit signals, position sizing, and a number of other conditions.
To start trading yen FX, first perform research to better understand current Japanese monetary policies and key economic indicators, and consider consulting with reputable brokers that specialize in the USD/JPY currency pair.
Before jumping headfirst into the yen FX market, it’s best to understand what makes the JPY move. Although there are likely many underpinnings driving the yen at a given time, three key market drivers stand out:
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). Perhaps the greatest movers of the Japanese yen FX are monetary policy issues, such as the BoJ or Fed raising or lowering interest rates.
Some events worth watching include:
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 thus, 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$798.25 billion in 2023)5 in total exports. Given its trade relationship with the U.S., any dropoff in this area can be a precursor for a weakened JPY.
The policies of the Japanese and U.S. governments can have profound impacts on the yen FX. A few recent examples are increasing cybersecurity legislation, the movement toward sustainability influenced by the climate crisis, and U.S.-Japan trade agreements.
When trading Japanese 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.
Without a doubt, FX futures furnish active traders with many opportunities—a Japanese yen futures contract is yet another avenue for potential portfolio growth, with the right strategy.
Are you ready to capitalize on the action? If you want to take your trading strategy to the next level, check out our Futures & Options Strategy Guide.