HKD is not the most widely used world currency. It acts as a “reserve” for Hong Kong, which is a particular administrative region of China. Today, the Hong Kong dollar is one of the most critical global trading currencies and eight forex trading currencies. Although this is the third currency in Asia, HKD is not yet considered the full reserve currency, and trading is possible through a pair exchange system. This means that you can trade HKD in a narrow band against the US dollar. The interest rate of HKD is generated automatically to maintain a stable exchange rate. Although Hong Kong has been part of China for many years, it still functions primarily as an autonomous region with a small domestic economy, the 39th largest in the world in terms of GDP.
Hong Kong’s GDP growth over the past 20 years has been quite volatile; however, in general, it usually exceeded 5%, and sometimes reached 10%. The inflation rate was also unstable – up to 10% in 1995, but in fact, it was negative for more than four years at the turn of the century. Recently, interest rates at HKD have been quite low. However, the debts of developers, which are covered by domestic banks, have an unstable and significant impact on the Hong Kong economy.
It is not surprising that the country’s economy is primarily based on the services sector, including hospitality, financial services, and retail. More than 80% of the workforce is employed in this area, although production exists in Hong Kong. There is a point of view that Shanghai is becoming an increasingly important financial center, and this may lead to the fact that Hong Kong should ultimately become less significant. However, so far, there is no indication that this is happening.
According to the laws of the economy, the yen, like the Hong Kong dollar, is driven by supply and demand. Problems affecting supply and demand can directly or indirectly affect the yen.
For starters, we have the gross domestic product. This is an indicator that allows economists to estimate the net production and consumption of goods and services in a country. It provides enough information about the state of the Japanese economy and can seriously affect the yen. A lack of economic growth usually causes a drop in currency.
Almost all Forex experts study the industrial production index. Japan is an economy that depends on production. Thus, the index indicates the volume of production in manufacturing, mining, and utilities. History has shown that when the data is negative, it can affect the value of the currency.
Another critical factor is the unemployment rate. Almost all those who trade in different markets, in particular, exchange currencies, follow labor relations that indicate the general condition of the Japanese economy. Data is published monthly by the Agency for Management and Coordination. Reducing unemployment at a faster rate than expected by the market could have an impact on the currency. Ultimately, this will lead to higher prices. It should be noted that the overall improvement in employment is considered very positive in the market.
The trade surplus is another crucial factor that may affect the yen. Economists say the country’s strength is based on the functioning of producers. Japan imports raw materials and turns them into finished products. The positive difference between exports and imports is otherwise called the trade surplus. The yen tends to react whenever there is a positive trade balance in the country.
Most likely, you heard about the Tankan Survey. This indicates the mood of entrepreneurs regarding the short-term prospects of the company. Usually, when the forecast is positive or more positive than expected, an increase in the value of the yen can be seen.
The yen is also affected by oil prices. The price increase is considered harmful for the Japanese economy and the currency since this leads to the rise in prices for Japanese products.
If a trader plans to trade in HKD/JPY, most of the financial indicators of the United States of America should be taken into account: US GDP, unemployment rate, exchange rate adjustment, etc. It is equally important to take into account the economic indicators of Hong Kong and Japan themselves. The Japanese yen is considered the currency of a high-tech low-income country. Since the Hong Kong dollar is slightly different from other currencies, its economic drivers are also different. To some extent, financial data such as GDP, current accounts, trade balances, and inflation are essential, since the Hong Kong dollar can only work in a narrow band. Moreover, since the Chinese and Hong Kong economies are closely interconnected, any invasion of the black environment in HKD/JPY will inevitably fail.
HKD/JPY is not a mainly traded pair since large banks with powerful computers can receive some profit from the fractional movement of currency prices in pairs, the narrowness of the range keeps most small speculators from investing. Therefore, most transactions that use HKD are intended solely for business operations or as part of a manual transaction. Currently, the Hong Kong dollar has a low-interest rate, which makes it an attractive currency for carrying traders.
There is a reasonable chance that in the long run, HKD/JPY will no longer be so relevant. In the end, there may come a time when the currency control over the Chinese yuan will be significantly reduced or weakened, at which time the HKD will not play a vital role in the HKD/JPY pair.