The Japanese yen has a long history, and has succeeded in becoming a powerful currency around the world.
The Japanese yen (JPY, ¥) is the official currency of Japan, and is the third most commonly traded currency in the world, after the US dollar and the euro. It’s also Asia’s most heavily traded currency. When it comes to reserve currency, it’s right behind the US dollar, euro and British pound. Japanese yen carries trade with the US and Australian dollar, mainly because of the yen’s relatively low cash rate.
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Currency in Japan dates back to the 8th century when coins made of copper and sliver, called the “Wadōkaichin”. These coins were similar to the Chinese coins, and were even used by the Japanese when Japan couldn’t produce enough coins. Once the economy grew in Japan, and trade was more prevalent, there was a need for large-denomination currencies.
The daimyo warrior, Hideyoshi unified Japan in the 1500s, and put in place a unified currency system, centralized most of the minting of large denomination silver and gold coins.
The modern day yen came into effect in May 1871, and by December 1931 it shifted from the gold standard to the current managed currency system.Back to top
Value and exchange rates of the Japanese yen
After the devaluation of silver in 1873 the yen devalued against the US and Canadian dollars because they followed the gold standard. By 1897 the Japanese yen valued at around USD0.50, and because it adopted the gold standard in the same year, the value of the yen froze at USD0.50. The exchange rate remained the same until Japan withdrew from the gold standard in 1931. By 1932 the value of the yen fell to USD0.30, and by 1933 it dropped to USD0.20. Its value remained steady until World War II began, and by December 1941 it traded at USD0.23.
World War II damaged the yen, causing inflation and the drop of value to a fraction of its prewar value. There was no true exchange rate for the yen from December 1941 to April 1949. In 1949 the Bretton Woods System fixed the value to one US dollar per 360 yen, helping to stabilize prices in Japan.
Once the US stopped using the gold standard in 1971, the yen had become largely undervalued. Imports cost the Japanese too much, while exports sold for too little. The Japanese government agreed to a new fixed exchange rate to one US dollar per 308 yen.
Supply and demand pressures in the forex markets meant that the new rates were hard to maintain and by 1973, most countries adopted the floating currency system.
During the 1970s business people in Japan as well as the country’s government were worried about competition in the import and export markets and the rise of the yen’s value. They were concerned that this would make Japanese products less competitive, so the Japanese government continued intervening in forex markets even after the yen adopted the floating system in 1973.
The yen did climb in value until the beginning of the oil crises in 1973. From an average of around 271 yen per US dollar in 1973, its value dropped between 290 yen and 300 yen from 1974 to 1976. A trade surplus re-emergence got it to trade at 211 yen per US dollar in 1978. Another oil shock in 1979 dropped the value again, and in 1980 saw the US dollar trade at 227 yen.
The yen did not rise in value in the early part of the 1980s, and its average value against the US dollar dropped from 221 yen in 1981 to 239 yen in 1985.
However, the 1985 Plaza Accord led to a change in fortunes for the yen. By 1988, it peaked to ¥128 against the US dollar. It dropped in value slightly in 1989 and 1990, but got to a new high of ¥123 against the US dollar in December 1992. By April 1995, it hit a new peak of less than ¥80 per US dollar, at which point Japan’s economy was almost the size as the US economy.
But the Japanese asset price bubble caused the yen to decline in value, and continued in a downward trend even after. In February 2002, it traded at ¥134 to the US dollar. A 2007 estimate by The Economist said the yen was 40% undervalued against the euro, and 15% undervalued against the US dollar.
The global economic crisis that began in 2008 actually caused the yen to gain ground against most other major currencies. From November 2008 to April 2013, the US dollar valued at less than 100 yen, and one US dollar traded at over 100 yen again only in May 2013. By September 2015, the US dollar traded at 120.13 yen.
The table below gives you an indication of how the yen has fluctuated in value against some major currencies.
|Chinese renminbi yuan||0.0332||0.0768||0.0746||0.0772||0.0519|
All values are yearly averages.Back to top
History of the Japanese yen
In the 19th century Spanish silver dollars were used throughout South East Asia, Japan and the cost of China. These coins arrived on ships from Mexico to Manila, for over two and a half centuries. By the second half of the 19th century local coins the production of coins that resembled Mexican pesos began, beginning with the silver Hong Kong dollars. However, these Hong Kong dollars were not used very long.
In 1871 Japan decided to officially adopt a silver coin named ‘yen’, which literally translates to ‘a round object’. The yen was basically a dollar unit, and until 1873 all dollars the world over valued pretty much the same. The use of a decimal system came into effect as per the New Currency Act of 1871, which the country did away with in 1953.Back to top
Coins and banknotes of the Japanese yen
Circulation of coins began in 1870, at which point there were 5, 10, 20 and 50 silver sen coins, and 2, 5, 10 and 20 gold yen coins. The use of 1 yen gold coins began in 1871. Currently circulating coins include ¥1, ¥5, ¥10, ¥50, ¥100 and ¥500. Occasionally, Japan mints commemorative coins in silver and gold with face values of up to 100,000 yen.
Japan started issuing banknotes in 1872, and the denominations of these notes have always varied in between 10 and 10,000 yen. Different bodies in the country issued banknotes before and during WWII which included the Imperial Japanese National Bank and the Ministry of Finance. Post war, only the Bank of Japan had the authority to issue bank notes. There have been five series since World War II, and the fifth series, or series E, consists of 1,000 yen, 2,000 yen, 5,000 yen, and 10,000 yen notes.