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The Tokyo/Asian Forex Trading Session
For traders located in the United States (“Murica”), the forex trading day actually begins on Sunday night at 5:00 pm EST (10:00 pm GMT). However, significant liquidity doesn’t typically show up until the Tokyo session opens a few hours later.
The Start of the Tokyo/Asian Session
The opening of the Tokyo session at 12:00 am GMT (8:00 am in Tokyo) marks the start of currency trading in the Asia-Pacific region. This session is sometimes referred to as the “Asian session” as it encompasses major financial centers beyond just Tokyo.
The Importance of the Tokyo/Asian Session
Japan is the third-largest forex trading center in the world, which isn’t surprising given that the Japanese yen is the third most traded currency, accounting for 16.8% of all forex transactions. Overall, around 20% of global forex trading volume takes place during the Asian session.
Shifting Dynamics in the Asian Session
While Tokyo was historically the dominant player in the Asian session, in recent years, more forex trading volume has come out of other major financial centers in the region, such as Singapore and Hong Kong. Both Singapore and Hong Kong now comprise 7.6% of overall forex trading volume each, while Japan’s share has decreased to 4.5%.
The Evolving “Asian Session”
Given the increasing prominence of other Asian financial hubs beyond Tokyo, the term “Asian session” may be more appropriate than the narrower “Tokyo session” when referring to forex trading activity in this region. The forex market in Asia has become more geographically diverse, reflecting the growing economic power and influence of various economies in the Asia-Pacific.
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| PAIR | TOKYO |
|---|---|
| EUR/USD | 56 |
| GBP/USD | 54 |
| USD/JPY | 30 |
| AUD/USD | 65 |
| NZD/USD | 58 |
| USD/CAD | 39 |
| USD/CHF | 40 |
| EUR/JPY | 57 |
| GBP/JPY | 72 |
| AUD/JPY | 65 |
| EUR/GBP | 23 |
| EUR/CHF | – |
These pip values were calculated using averages of past data. Take note that these are NOT ABSOLUTE VALUES and can vary depending on liquidity and other market conditions.
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The Tokyo Session: Characteristics and Insights
1. Global Participation:
– The Tokyo session is not limited to just the Japanese market. It sees a significant amount of forex transactions originating from other major financial hubs in the Asia-Pacific region, such as Hong Kong, Singapore, and Sydney.
2. Market Participants:
– The primary market participants during the Tokyo session are commercial companies, particularly exporters, and central banks. Japan’s economy is heavily export-dependent, and with China being a major trade partner, there is a high volume of transactions taking place daily.
3. Liquidity Fluctuations:
– Liquidity can be quite thin at times during the Tokyo session. This can lead to periods where trading feels like “fishing” – with traders having to wait patiently for opportunities to arise.
4. Currency Pair Behavior:
– Stronger moves are more likely to be observed in Asia-Pacific currency pairs, such as AUD/USD and NZD/USD, compared to non-Asia-Pacific pairs like GBP/USD.
5. Range-Bound Trading:
– During periods of thin liquidity, most currency pairs may exhibit range-bound behavior. This can present opportunities for short-term day trades or potential breakout trades later in the day.
6. Early Session Activity:
– The majority of the action and volatility during the Tokyo session occurs early in the session, when more economic data is typically released.
7. Tone-Setting for the Day:
– Moves made during the Tokyo session can set the tone for the rest of the trading day. Traders in subsequent sessions, such as the London and New York sessions, will often look to the Tokyo session’s performance to help inform their strategies and decision-making.
8. Post-New York Session Consolidation:
– After significant moves in the preceding New York session, the Tokyo session may experience a period of consolidation as the market digests the recent developments.
Understanding these key characteristics of the Tokyo session can help traders better navigate the unique dynamics and opportunities present during this important phase of the global forex market.
Trading Opportunities in the Tokyo Session
1. Focus on Asia-Pacific Currency Pairs:
– Given the increased activity and news events originating from the Asia-Pacific region during the Tokyo session, traders should consider focusing on currency pairs such as AUD/USD, NZD/USD, and USD/JPY.
– These pairs are likely to exhibit stronger and more volatile price movements compared to non-Asia-Pacific pairs.
2. Yen-Denominated Pairs:
– The Tokyo session is marked by a high volume of yen transactions as Japanese companies conduct their business. This can lead to increased volatility in yen-denominated currency pairs, such as USD/JPY, EUR/JPY, and GBP/JPY.
– Traders may find opportunities to capitalize on the price swings in these pairs during the Tokyo session.
3. China’s Economic Influence:
– As a major economic superpower, news and data releases from China can have a significant impact on the overall market sentiment and volatility.
– Currency pairs involving the Australian dollar (AUD) and Japanese yen (JPY) may be particularly susceptible to fluctuations when Chinese economic data is released, as these economies are closely tied to China’s economic performance.
4. News and Event-Driven Trading:
– The Tokyo session is a prime time for traders to capitalize on news and economic events from Australia, New Zealand, and Japan.
– Traders should closely monitor the economic calendar and be prepared to react to the release of key data and announcements from these countries, as they can trigger volatile price movements in the respective currency pairs.
5. Range-Bound Opportunities:
– During periods of thinner liquidity, currency pairs may exhibit range-bound behavior, presenting opportunities for short-term day trading strategies or potential breakout trades later in the day.
– Traders should be mindful of the market conditions and be prepared to adapt their strategies accordingly.
By focusing on Asia-Pacific currency pairs, yen-denominated pairs, and being attentive to news and economic events during the Tokyo session, traders can potentially capitalize on the unique opportunities and dynamics present in this important phase of the global forex market.
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