Buy Japanese Yen to profit from exchange rate differences: Master the profit secrets of foreign currency trading from a practical perspective

Why Are Global Investors Focusing on the Forex Market?

When it comes to investing, people often first think of stocks, funds, or gold. But there is a market whose trading volume far exceeds all of these products—that is the foreign exchange (forex) market. The daily forex trading volume worldwide exceeds $6 trillion, a figure much larger than the entire stock market.

The forex market attracts global investors not only because of its enormous trading volume and high liquidity but also because it directly relates to everyone’s daily life. Whether traveling abroad, shopping internationally, or engaging in international trade, exchange rate fluctuations are unavoidable. Instead of passively bearing exchange rate risks, it’s better to actively seize profit opportunities within them. Especially in recent years, even mature market currencies have experienced dramatic surges, creating ample arbitrage space for savvy investors.

The Core Mechanism of Profiting from Yen Exchange Rate Differentials: Everything Starts with the Exchange Rate Difference

To understand how to profit from buying yen and earning exchange rate differentials, first grasp the meaning of spread.

The spread essentially refers to the price difference of the same currency at different times or through different trading channels. Simply put, it’s about “buy low and sell high” or “sell high and buy low” to earn the difference.

For example, with the Japanese Yen (JPY), suppose you expect the yen to appreciate. When USD/JPY is at 161, you buy 1 standard lot (100,000 units). When the rate drops to 141, you close the position and sell, earning the profit from the price difference.

The specific calculation formula is: Profit Spread = (Close Price - Open Price) × Trading Volume

This simple mathematical relationship is the foundation for countless traders to earn profits in the forex market.

Three Major Ways to Invest in Foreign Currencies, Each with Different Risks and Returns

Conservative Choice: Bank Foreign Currency Fixed Deposit

If you are new to forex investing, bank foreign currency fixed deposits are the safest and lowest-threshold method. Just open a foreign currency account at the bank, convert TWD to foreign currency at the posted exchange rate, and deposit regularly to earn interest in a safe environment.

Many Taiwanese prefer USD fixed deposits (due to relatively high interest rates and broad usage) or ZAR fixed deposits (with much higher rates than TWD). But note that fixed deposits mainly earn interest income, not exchange rate differentials. When you want to actively seize the appreciation of the yen for arbitrage, the limited frequency of fixed deposits becomes a bottleneck—early withdrawal results in losing interest and reduces flexibility for shorting.

Tip: Fixed deposits are suitable for conservative investors who believe in long-term appreciation of a currency and are willing to wait. To earn from exchange rate differentials, more flexible trading methods are needed.

Balanced Approach: Foreign Currency Funds

Foreign currency funds sit between bank fixed deposits and margin trading, representing a medium-risk investment. They combine the advantages of currency investment with stocks/bonds, allowing you to profit from multiple angles.

For example, if you are bullish on the yen’s appreciation and believe Japanese stocks are undervalued, buying yen-denominated Japanese equity funds can realize “dual profits”—gaining from yen appreciation (exchange rate differential) and stock price increases.

High-Yield Path: Forex Margin Trading

Forex margin trading is the most flexible and efficient way to profit from yen exchange rate differentials, but also the riskiest.

The core advantage of this method is leverage. Investors only need to pay a certain margin to conduct large trades far exceeding their capital. For example, some platforms offer up to 200x leverage on USD/JPY. If the yen surges from 161 to 141 (as in the real case last August), leveraged traders’ profits will multiply.

However, leverage is a double-edged sword. When the market moves in your favor, profits are amplified; when it moves against you, your principal can be wiped out quickly. Therefore, forex margin trading requires strong risk management and technical analysis skills.

Why Does Forex Margin Trading Attract Investors Worldwide?

1. Lower Transaction Costs than Banks

Banks’ bid-ask spreads for foreign currencies are usually 0.3% to 0.47%, meaning you lose a significant portion of profit just on currency exchange. In contrast, forex trading platforms often have spreads less than 0.01%, with some major currency pairs (like EUR/USD) as low as 0.0082%.

This means that even without leverage, short-term gains through forex margin trading can far surpass bank currency exchange profits, saving on high intermediary fees.

2. 24-Hour Two-Way Trading Mechanism

Forex trading has no centralized exchange, so there are no fixed opening or closing times. Due to the overlap of the four major trading sessions (Sydney, Tokyo, London, New York), investors can trade 24 hours a day, Monday through Friday.

This is crucial for traders wanting to seize yen appreciation opportunities—when important economic data is released during Tokyo hours, you can respond immediately without waiting for bank operating hours.

3. Flexibility of Two-Way Profits

Whether the exchange rate rises or falls, there are profit opportunities. Bullish on yen appreciation? Buy (go long). Expect yen depreciation? Sell (go short). This two-way mechanism greatly expands trading opportunities.

Five Major Trading Strategies to Find Your Profitable Rhythm

Range Trading: Finding Certainty in Fluctuations

When exchange rates oscillate within a certain range, range trading shines. Traders identify support and resistance levels and buy low, sell high at key points.

A classic example is EURCHF from 2011 to 2015. The Swiss National Bank declared to maintain the currency pair above 1.2000, leading traders to continuously trade within the 1.2000–1.2500 range, earning substantial profits.

Risk Tip: Range trading seems stable, but if the range is broken (e.g., SNB’s sudden policy change in 2015), losses can be severe. Strict stop-loss is essential.

Trend Trading: Riding the Wave is the Highest Realm

When the market shows a clear direction, trend trading can capture large swings. For example, starting May 2021, due to aggressive Fed rate hikes and delayed ECB moves, massive capital flowed into the dollar, causing EUR to decline sharply over 18 months until October 2022. Trend traders during that period reaped significant profits.

Insight: Once a trend forms, it rarely changes easily. Find a safe entry point and let time and trend work for you with a “steady” approach.

Day Trading: Catching the Moment of News

Short-term traders focus on breaking news and data releases. FOMC statements, Bank of Japan meetings, key economic indicators—these moments often trigger sharp currency movements.

For example, mid-2021, the Fed began aggressive rate hikes, with a single increase of 100 basis points—the highest in nearly 30 years—directly boosting USD/JPY. If you can accurately grasp these moments, you can earn huge returns in just 1-2 days.

Trading Motto: Strike quickly, avoid prolonged uncertainty. Short-term trading often turns into long-term losses.

Swing Trading: Combining Technical Analysis and Fundamentals

Swing trading lies between day trading and trend trading, requiring traders to understand both technical analysis and fundamentals. The key is to look for signals like “breakout upward, breakdown downward, trend reversal, trend retracement.”

On January 15, 2015, the Swiss National Bank announced to remove the EURCHF 1.2000 floor, causing a shocking “Swiss franc black swan event.” This is an extreme risk swing traders must guard against.

Trading Wisdom: The greater the volatility, the more opportunities—and risks. Take profits when the time is right; don’t let greed swallow you.

Position Trading: Patience for Long-Term Holding

If you dislike frequent trading, position trading offers another path. By analyzing macroeconomic factors, historical trends, and central bank policies, you identify long-term currency appreciation potential. Enter at relatively low levels and hold until target prices.

The USD index reached a high of 114 in the past decade. Savvy position traders might short near the high or go long near the low, capturing large swings spanning months or even years.

Position Trading Mindset: Find the big direction, choose low-cost entry points, and be patient. Unlike stocks, forex will never skyrocket to the moon or crash to zero; it always fluctuates within a reasonable range.

Why Choose Buying Yen to Earn Exchange Rate Differentials Instead of Other Investments?

1. Wide Application and Practicality

Yen is not just an investment tool but also a practical currency. Planning a trip to Japan, buying Japanese goods, or engaging in Japanese trade—all require yen. Researching yen exchange rates, exchanging at low points, and engaging in carry trades can prepare for future consumption and generate extra income.

2. Clear Trend Logic, Easy to Judge

Compared to stocks’ complexity, forex’s price movements are relatively straightforward—mainly influenced by macro factors like interest rate policies, inflation levels, and economic growth differences between countries. Understanding the Bank of Japan’s policy stance and the Fed’s interest rate cycle allows you to roughly predict yen’s future trend.

3. High Market Transparency, Difficult to Manipulate

With a daily trading volume exceeding $6 trillion, the forex market is difficult for any major player to manipulate. Plus, operating across multiple time zones 24/7 ensures rapid and transparent information flow, enabling investment decisions based more on real data than guesses.

Foreign Currency Trading Time Planning

Bank Foreign Currency Trading Hours

Banks typically offer foreign currency exchange services from 9:00 AM to 3:30 PM on weekdays, stopping on weekends and holidays. This limits the flexibility of traditional bank fixed deposits.

Forex Margin Trading Schedule

Due to overlapping trading hours, you can trade continuously from Monday to Friday. The Tokyo session is especially important for yen-focused investors—major economic data and BOJ announcements are often released during this time.

Final Thoughts

Buying yen to profit from exchange rate differentials has no absolute best method—only the most suitable one for you. Conservative investors can start with bank fixed deposits and gradually move to foreign currency funds or margin trading. Aggressive traders can directly enter the market but must have comprehensive risk management systems.

Regardless of your choice, the key lies in deep research—study BOJ’s policy intentions, monitor the USD-JPY interest rate spread, and analyze global economic cycles’ impact on the yen. Sharpen your skills; the forex market rewards those who prepare diligently.

Before risking real money, try practicing with a demo account. Familiarize yourself with trading procedures, test your strategies, and build confidence—these are essential steps toward becoming a successful trader.