Yen slips ahead of BoJ as USD/JPY fixing gains 65 pips: what is a pip?

The yen gave back some of last week's gains on Monday. The ECB reference rate for USD/JPY rose 0.41% to 157.45 in the 26 October fixing, up from 156.80 on Friday 23 October, as the dollar firmed ahead of a week packed with central bank decisions.

Investing.com reports that the dollar rebounded as the euro slipped ahead of key central bank meetings. According to an investingLive Asia-Pacific wrap, the Bank of Japan (BoJ) is expected to hold its rate at 1.25%, while Governor Ueda has signalled further hikes. Our sister site has a wider look at the dollar's rebound as traders brace for Fed and BoJ decisions. The Canadian dollar also lost ground: USD/CAD's fixing rose 0.24% to 1.4028, back above 1.40.

What is a pip?

A pip is the standard unit traders use to measure how far an exchange rate moves. The name is short for "percentage in point" or "price interest point".

For most currency pairs, a pip is the fourth decimal place, or 0.0001. If EUR/USD moves from 1.1193 to 1.1194, it has moved one pip.

Pairs that include the Japanese yen are different. The yen has a much smaller value per unit, so its rates are quoted with fewer decimals. For yen pairs, a pip is the second decimal place, or 0.01.

Pips let traders talk about moves in a simple, common language. Saying "the pair rose 65 pips" is clearer than listing two long numbers.

A worked example

Here is how today's fixings translate into pips.

USD/JPY (a yen pair, pip = 0.01)

• 157.45 minus 156.80 = 0.65
• 0.65 divided by 0.01 = 65 pips higher

EUR/USD (pip = 0.0001)

• 1.1188 minus 1.1193 = -0.0005
• -0.0005 divided by 0.0001 = 5 pips lower

GBP/USD (pip = 0.0001)

• 1.3348 minus 1.3368 = -0.0020
• -0.0020 divided by 0.0001 = 20 pips lower

Investing.com reports that the pound slipped as the dollar held firm ahead of the Fed decision, which fits that 20-pip drop.

Now, what is a pip worth in money? It depends on the size of the position and the quote currency (the second currency in the pair).

To convert the yen result into dollars, divide by the rate: 6,500 / 157.45 = about 41.28 dollars. So a 65-pip move on a 10,000-dollar position was worth roughly 41 dollars between these two fixings.

Remember these are ECB fixings, one per business day, not live quotes. Actual market prices moved around during the day.

Why it matters for new traders

Pips are how brokers and analysts describe almost everything: price moves, trading costs and distances to stop-loss orders (orders that close a trade at a set price to limit losses). If you mix up the decimal place, you can misjudge risk by a factor of 100.

The yen is the classic trap. A move from 156.80 to 157.45 looks small next to EUR/USD figures, but in pip terms it was 13 times larger than EUR/USD's 5-pip slip today.

Pip values also differ between pairs. One pip on EUR/USD and one pip on USD/JPY are not worth the same amount of money, as the table shows. Always check the value per pip before comparing moves.

This week may test that. Investing.com notes that US yields hover near three-week lows ahead of the Fed decision, and the BoJ meets too. Central bank days often bring larger pip moves. You can follow USD/JPY on a live chart.

Key terms

• Pip: the standard unit of price movement, 0.0001 for most pairs and 0.01 for yen pairs.
• Quote currency: the second currency in a pair; pip values are first calculated in it.
• Pip value: how much money one pip is worth for a given position size.
• Reference rate (fixing): an official daily rate, such as the ECB's, not a live market price.
• Stop-loss: an order that closes a trade at a set price to cap losses.