What is ZAR/JPY?
The ZAR/JPY currency pair represents the exchange rate between the South African rand (ZAR) and one of the world's main reserve currencies, the Japanese yen (JPY), or the number of yen required to purchase one rand (the base currency).
South Africa is a prominent member of numerous regional organisations and actively promotes economic cooperation and development in Africa. South Africa is one of the BRICS economies, which are characterised by their large populations and emergent market status (Brazil, Russia, India, China, and South Africa). Numerous sectors, such as energy, infrastructure, and technology, offer investment opportunities in this country. The rand's volatility and sensitivity to external forces provide ample opportunities for traders to profit from market fluctuations.
Japan's economy is technologically advanced and highly developed, with prominent manufacturing and export sectors. The Japanese yen is the third most traded currency in the world and is regarded as a safe-haven asset, making it an attractive way to de-risk portfolios during times of financial or economic instability. The yen has a 150-year history and is notable for its exceptionally low-interest rates, which promote economic growth.
As it is feasible to borrow yen at low-interest rates to finance higher-yielding projects, the JPY has become the world's financing currency. Due to Japan's current account surplus and reputation for economic stability, international investors find the yen a desirable currency.
This "exotic" combination illustrates the interaction between two diverse economies and their respective currencies and can provide forex speculators with diversification opportunities.
What affects the price of the ZAR/JPY pair?
The ZAR/JPY pair has frequently been influenced by prevailing financial market risk sentiment. As a safe-haven currency, the Japanese yen tends to appreciate during times of ambiguity or market turmoil, causing the pair to fall as investors seek the yen's relative safety. In contrast, when risk aversion is high, the ZAR/JPY exchange rate can rise as traders select higher-yielding assets, such as emerging market currencies such as the rand.
South Africa has an abundance of natural resources, such as gold, platinum, and diamonds, as well as agricultural products. The rand's value is significantly influenced by global commodity price fluctuations. Consequently, the currency fluctuates frequently in response to shifts in demand for these resources.
The rand is classified as an emerging market currency. This makes it more susceptible to market sentiment and global economic volatility. Investors frequently regard currencies of emerging markets as riskier, resulting in potential volatility in the rand's value.
South Africa’s and Japan's trade balances can influence the exchange rates of their respective currencies. Platinum and iron ore are South Africa's primary exports to Japan, while it imports motor vehicles and accessories. South Africa's exports to Japan have increased steadily over the past quarter-century. If South Africa exports more products and services to Japan than it imports from Japan (a trade surplus), this increased demand for the ZAR in trade transactions may cause the ZAR to appreciate against the JPY.
The South African Reserve Bank (SARB) and the Bank of Japan (BoJ) also impact the ZAR/JPY exchange rate. Higher interest rates in South Africa relative to Japan may entice foreign investors to seek higher returns on their investments, resulting in a rise in demand for the ZAR and a possible ZAR appreciation versus the JPY.
What to watch out for when trading ZAR/JPY?
Traders of ZAR/JPY should monitor economic data releases such as GDP growth, employment statistics, inflation, and South Africa and Japan's trade balances. Consider the announcements of influential organisations in both countries. These include:
- South African Reserve Bank and the Bank of Japan for monetary policy and Interest Rate decisions
- Statistics South Africa and Statistics Bureau of Japan (SBJ) for data on Trade Balance, Unemployment Rate, Consumer Price Index (CPI), and Gross Domestic Product (GDP)
- Natural disasters affecting Japan