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Yen cross

Any pair with the yen as the quote currency but not the dollar as the base, such as AUD/JPY, EUR/JPY or GBP/JPY.

Yen crosses are the standard vehicle for the carry-trade, because Japan's policy rate was the lowest in the developed world for decades. Buying a higher-yielding currency against the yen collects the differential through the swap-rate.

That makes them a sentiment gauge. AUD/JPY in particular tends to rise with equities and fall faster than equities when risk is cut, since both the risk currency and the funding currency move against the position at once.

Example: a trader long AUD/JPY at 98.50 earns roughly JPY 700 per night per standard-lot in swap. A single 3% drop to 95.55 costs JPY 295,000, wiping out over a year of carry.

Related: carry-trade, carry-unwind, guppy, funding-currency

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Contango and backwardationTwo futures curves against contract expiry: one rising above spot, one falling below it.The same commodity, priced for delivery at different dates.78.0076.0074.0072.0070.00Futures pricespot+1m+2m+3m+4m+5m+6mMonths until the contract expiresspot price74.00CONTANGOlater contracts cost more than spotBACKWARDATIONlater contracts cost less than spot
Contango and backwardation. A futures curve shows what buyers will pay for delivery in one month, two months and so on. When later contracts cost more than the spot price the curve is in contango; when they cost less it is in backwardation.

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