The Best FX Pairs to Trade During the Tokyo Session

Best Forex pairs to trade in Tokyo trading sessions

Among the tradable currency pairs during the Tokyo Forex market hours, the best Forex pair to trade is the USD/JPY. Due to the high volume of trades, USD/JPY is known to have higher liquidity and volatility during the Tokyo Forex market hours. As of 2019, 13.2% of all Forex trades were with the USD/JPY currency pair.

Depending on the trader's skill level and method of operation, different Forex pairs will perform best during the Tokyo session. USD/JPY is an excellent choice for traders looking to capitalize on short-term price movements. However, USD/JPY is not the only currency pair to trade during the Tokyo session. Currency pairs like AUD/USD, NZD/JPY, AUD/JPY, and EUR/JPY are great options.

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Most popular currency pairs

The Forex market is active 24 hours a day, five working days a week, with a wide range of Forex currencies to trade. To succeed with Forex trading, you need to understand these pairs deeply. Earlier, we stated that choosing pairs from the major currencies is the best option for trading, especially if you are new to Forex. We have provided a brief profile of the six most traded currency pairs to help you make the right call.

EUR/USD

The EUR/USD pair accounts for 28% of daily Forex trades, making it the most traded currency pair on the Forex market. This is expected considering the pair represents the two largest economies globally, the United States and Europe. For beginners, stability and liquidity are two key factors to consider when trading. Unlike other currency pairs, there aren’t so many big price swings when trading EUR/USD.

USD/JPY

The next most traded currency pair after the EUR/USD is the USD/JPY. As it is otherwise known, the ‘gopher’ represents 13% of daily Forex trades. The USD/JPY rate is a standard for the performance of the Asian economy. The pair’s movement also tends to be in tandem with the USD/CHF and USD/CAD currency pairs due to the presence of the US dollar in all pairs as the base currency.

GBP/USD

GBP/USD, otherwise known as the ‘cable’, accounts for 11% of all daily trades. The GBP/USD pair tends to move in tandem with EUR/USD as they are well-developed markets. This pair is a good option for traders as they represent two of the most stable economies worldwide. The price movements are affected by interest rates stipulated by the Bank of England and the US Federal Reserve (Fed).

AUD/USD

The AUD/USD currency pair, dubbed the ‘Aussie’, makes up 6% of daily Forex trades. Because the USD is this pair’s ‘quote’ currency, its position is not as strong as the first three pairs. Also, the Australian dollar value is dependent on Australia’s commodities exports. Iron and coal represent a large proportion of Australian exports, and any rise or fall in the value of these commodities influences the price movements of the currency pair. Also, disparities in interest rates set by the Reserve Bank of Australia and the Fed affect the exchange rate.

USD/CAD

The ‘loonie’, as the US dollar-Canadian currency pair is otherwise known, is popular among professionals and beginner traders. The pair accounts for 5% of daily trade volumes in the Forex market. Like the other major pairs, the loonie is a good option for traders because of its high liquidity and better spreads. This makes it suitable for swing trading or day trading. The exchange rate of the USD/CAD is influenced mainly by crude oil prices, particularly Brent and US crude.

USD/CHF

The USD/CHF pair represents the US and Swiss economies. CHF stands for 'Confoederatio Helvetica' Franc, the only Franc still in circulation in Europe. The ‘Swissie’, as this pair is sometimes called, accounts for 5% of daily global trades. Traders choose this pair in times of increasing market volatility because they expect price drops as the Swiss franc gains against the dollar due to increased investment in the currency. However, it remains one of the least actively traded major pairs.

Major global FX trading sessions

While the Forex market remains the world's biggest, most liquid, and most volatile market, there are 4 Forex trading sessions:

Each of the above trading sessions has its own level of liquidity and volatility. And this is what traders should watch out for when choosing the best Forex trading session to trade currency pairs. Based on this knowledge, the London and New York sessions seem to have a high volume of transactions. And this is because London New York has the highest volatility.

Below is a representation of trading activities during this session based on how busy the market gets when each session opens:

From the above data, London has the highest volume of transactions, followed by New York and Tokyo. Tokyo has just 6% because it is known to be a low-volatility Forex trading session, which is why many traders deter from trading when the Tokyo session opens. But that does not imply traders cannot generate profits trading during the Tokyo Forex market hours.

Importantly, there are no underdogs among all the Forex trading sessions if a trader understands how to approach each trading session. The best Tokyo session Forex pairs are among what a trader needs to participate in and profit from the Tokyo Forex market hours. Before we learn about the best pairs to trade during the Tokyo session, let's look at some key points about the session.

Tokyo session key takeaways

Generally, it is recommended that before a trader concludes a Forex trading session to trade, they do research about it. Learning about the various Forex pairs is also crucial if you want to trade only the best during a Forex session. So let us examine some of the most significant characteristics of the Tokyo Forex trading session, which is the article's main subject.

As previously mentioned, the Tokyo market is open from 8:00 a.m. to 6:00 p.m. local time. And because of the volume of trades that Tokyo banks facilitate, the Asian session starts when they are active. The economic hubs in Europe and the US are less active during this time. So there are records of low trading volumes because these major sessions are idle for the whole Tokyo session.

However, because only Asian liquidity is entering the market, this results in less volatility. But there are distinct entry and exit points, which can raise the likelihood of entering a profitable trade. The spot support and resistance levels during the Asian session are typically clear.

According to research, trading in Tokyo is challenging and slow compared to trading in Europe and North America. But the low volatility seen during the Tokyo session can be advantageous because it simplifies the management of trades. Because of the market's sluggish movement, traders can effectively analyze the market.

Furthermore, the Tokyo session overlaps with the opening of the London market at the end of the Asian session, adding to the liquidity. And this can be the best time to open positions. To profit from the Tokyo Forex trading session, traders need to know the best pairs and the best time to trade during the Tokyo session. These pairs are best for low-volatility markets and high spreads, which characterize the Tokyo session.

What is the best time to trade Forex in Tokyo?

A trader seeking the best time to trade Tokyo session Forex pairs must understand the Japanese time zone. The time zone in Tokyo is GMT+9, without daylight saving time. This is why when the Tokyo market opens at 23:00 GMT, in Japanese, it is 8: a.m. And when it closes at 9:00 GMT, it is 6:00 p.m. in Japanese local time.

However, traders should focus on the time of greatest liquidity when deciding when to trade Forex in Tokyo. And given that the Tokyo session is less active and volatile than other significant trading sessions, this typically occurs during the overlap of the two Forex trading sessions. A Forex trading session overlap refers to a period when two sessions are open simultaneously. And these periods are the busiest times during the trading day.

During the overlap between the Sydney and London sessions, the volatility and liquidity of the Tokyo session rise. So the best time to trade Forex in Tokyo is during these overlaps.

The Sydney/Tokyo overlap occurs between 23:00 and 7:00 GMT, and the Tokyo/London overlap occurs between 8:00 and 9:00 GMT. The overlap introduces a higher pip fluctuation as different traders trade simultaneously, which increases volatility.

This results in more liquidity, which reduces the likelihood of slippages. Additionally, there are greater odds of lower spreads on the currency pairs. But a trader who has this knowledge but does not know the best pairs to trade during the Tokyo session might lose out on trades. So what are the best Tokyo session Forex pairs?

Before you learn about the best pairs to trade during the Tokyo session, there are days with the most volatility and liquidity.

The best day to trade Forex

According to the report from TU's research department, the information reviewed regarding the days with the most volatility and increased liquidity is as follows:

The analyzed data shows that Wednesday is the most stable day for traders, while Thursday and Friday are the busiest days in terms of price volatility and liquidity. Traders must take into account the significant economic data points that are released before opening positions on Mondays.

If there is not much of it, the day is not active, and if there is a lot, then the activity and liquidity increase to a level similar to Tuesday and Wednesday. Based on the availability of reports and statistical data released in different countries, Thursday and Friday are the most liquid and volatile days of the week.