In 1998, Japan’s Foreign Exchange and Foreign Trade Control Law was amended to make forex trading more accessible to everyday citizens. Since then, the Japanese yen has grown to make up almost 17% of the total foreign exchange market (forex market). If you’ve ever wanted to trade forex but weren’t sure how to get started as a resident or traveler in Japan, our all-inclusive guide to forex exchange markets will help you begin.
Get Started with Forex in Japan
Before you trade forex, you’ll need to open a brokerage account to access all financial markets. As a trader in Japan, you’ll have your choice from a wide range of international and domestic brokers. Here’s how to get started opening, setting up and funding your first account. International investors might want to access the Japanese economy, and Japanese investors can look into trading against the yen or other international currencies.
- Test your internet connection: The first thing you’ll need to trade forex is a stable internet connection. Run a speed test on your phone or computer to ensure that you have the reliable connection you need to trade.
- Choose a broker: You cannot buy and sell currencies directly. Instead, you’ll work through a licensed broker who executes trades on your behalf. When you compare brokers available to you, be sure to consider fees, services, supported trading platforms and currencies available. Once you find a broker that offers what you need, create an account.
- Select a trading platform: Though many brokers offer their own proprietary trading platform, you might want to use a 3rd-party platform like MetaTrader 4 or 5 for improved functionality.
- Fund your account: After you open your account, you need to deposit funds to trade with. Most Japanese traders do this by linking their bank account or by depositing funds via a debit or credit card.
- Start trading: Once your account is open and fully funded, you can place your order.
Japan Forex Trading Strategies
There are 2 major types of trading strategies that forex traders use to decide which currencies to buy and sell: fundamental analysis and technical analysis. Let’s take a look at some of the differences between the 2 and how you can decide which method is right for you. Remember, you’re analyzing both what central banks are doing to manage their currencies and what investors are doing to profit from these currencies.
Traders who use fundamental analysis as their primary trading strategy evaluate the countries that use the currencies they invest in. Fundamental analysis involves looking at political and economic indicators, such as:
- GDP reports
- Unemployment rates
- Non-farm payrolls
- Scheduled news events
- Government spending reports
- Consumer confidence reports
- Net spending data
Traders who use fundamental analysis as their primary trading strategy typically take a long-term or mid-term approach to currency trading. Though fundamental analysis doesn’t require advanced charting software, you must have access to an unbiased source for world news. You must also know how to interpret international economic and political data, such as interest rate and foreign exchange rate.
Traders who use technical analysis as their primary trading strategy doesn’t usually do much research into the economic health of the countries who use the currencies they trade. Instead, technical analysis traders look at charting patterns and past economic data to predict which currencies will rise in value relative to one another.
Some indicators that traders who use technical analysis may look for when deciding which currencies to buy may include:
- Reversal candles that indicate a changing trend
- Breakout candles that indicate a sudden value change
- Resistance and support levels that indicate buy or sell signals
Technical analysis traders need reliable trading software that allows them to chart data and trend lines. Most traders who use technical analysis as their primary trading strategy use a short-term or mid-term trading window before selling their currencies.
Forex Trading Example in Japan
Let’s take a look at an example of how you might earn money trading forex in Japan by converting your currencies at strategic times.
Imagine that you have 100,000 yen to invest and you believe that the USD will soon rise in value in relation to the yen. Your broker offers you 10:1 leverage for your investment, which means that you can invest with the power of 1 million yen despite only having 100,000 yen in your account. The conversion rate from USD to JPY is currently 1 dollar for every 107 yen. You convert your entire lot of yen and your leverage and are left with $9,345.
Soon, you see that the value of the dollar is rising in relation to the yen. When you decide to sell your dollars, 1 dollar is equal to 110 yen. You convert your entire lot and leverage back to JPY and are left with 1,027,950. Once you return the leverage you borrowed, you profited by a total of 27,950 yen on this trade.
Making Money with Forex in Japan
It’s both legal and possible to earn money trading forex as a Japanese resident. Although the Financial Services Agency (FSA) and the Japanese Ministry of Finance have taken steps to curb international brokers from entering Japan and limit leverage usage, these attempts have largely been unsuccessful. For example, in 2017, a proposed reduction of the country’s leverage limit from 25:1 to 10:1 was struck down after vehement protests from forex traders. The current leverage limitation remains at 25:1 today.
Despite this, the forex industry in Japan remains highly regulated, with the FSA regularly stress testing and auditing brokers to ensure that they have enough liquid capital to stay in business even after a major market event. This means that you’re very unlikely to run into a situation where you cannot withdraw funds or profits as a trader in Japan.
Though earning money as a forex trader in Japan is possible, there is no guarantee that you’ll make money trading currencies. Even if you have a perfect trading strategy, the currency market can be volatile and unpredictable. Use a demo account to test your trading strategy, limit the amount of leverage you use and only invest as much money as you can afford to lose.
Best Online Forex Brokers in Japan
Forex brokers in Japan are highly regulated — and there are many reliable and safe forex brokers offering accounts to Japanese residents. If you aren’t sure where to open an account, be sure to consider a few of our favorite brokers below.
- securely through Forex.com NON US's websiteBest For:Forex Trading in and Outside the U.S.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
- securely through eToro Forex's websiteBest For:Demo Accounts
CFD trading is not available to U.S. users. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
When you trade forex, you might notice that the realm of currency trading has its own unique “language” that traders and brokers use. Familiarize yourself with some of the most common terms below.
Pip: A pip is the smallest unit of any currency. In most cases, currencies are calculated to the 4th decimal place — the only exception is the Japanese yen, which is rounded to the 2nd decimal place. If the yen increases in value from 120.11 to 120.21 in relation to the USD, we’d say that the value of the yen moved by 10 pips.
Lot size: Your lot size is the total number of units of currency you’re buying or selling. For example, if you sell 100,000 JPY, your lot size is equal to 100,000.
Orders: An order is a request you make to your broker to buy or sell a currency on your behalf. There are many different types of orders, and you can use multiple order types to limit your losses and maximize profits.
Calls: If your equity dips below a certain percentage, your broker might subject you to a margin call. If you receive a margin call, you’ll be required to deposit more money into your trading account to maintain your position. Margin calls are a major risk of using leverage and can quickly wipe out your profits if you aren’t careful.
Preparing to Enter the Forex Market
Getting started trading forex begins with a solid educational background. Don’t be afraid to take plenty of time researching brokers and brokerage options before you choose where to open an account. Just a bit of research can end up saving you thousands in the form of decreased commission or savings on trading tools.
Frequently Asked Questions
What is the leverage in Japan for forex?
The leverage in Japan for forex trading is determined by the Financial Services Agency (FSA) and is currently set at 25:1. This means that a trader can open a position with up to 25 times their account balance, but the maximum leverage allowed must not exceed this amount.
What is the best time to trade Forex in Japan?
The Forex market is open 24 hours a day, 5 days a week which means that traders have the opportunity to engage in trading activities at any time. However, for those living in Japan, the best time to trade Forex is typically during the Japanese trading session, which runs from 3:00 pm to 11:00 pm Tokyo local time.
Do forex traders pay tax in Japan?
Yes, forex traders in Japan must pay taxes on their profits and losses. The Japanese government views profits from forex trading activity as taxable income and requires individuals to declare tax liabilities in accordance with the regulations of the country’s National Tax Agency (NTA).
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