The Japanese Yen: The Third Most Traded Currency

Here’s the information you need about the Japanese yen in terms of value, trading history, coins and banknotes.

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The Japanese yen (JPY, ¥) is the official currency of Japan. It is the third most commonly traded currency in the world, after the US dollar and the euro. It is also Asia’s most heavily traded currency. When it comes to reserve currency, it is right behind the US dollar, euro and pound sterling.

The use of the Japanese yen to carry trades with the US dollar and Australian dollar is quite common, mainly because of the yen’s relatively low cash rate. This is when people sell currencies with low interest rate and buy currencies with higher interest rates.

Currency use in Japan dates back to the 8th century, when the use of copper and silver coins called Wado Kaichin was prevalent. These coins resembled Chinese coins, and at one point, when Japan could not produce enough coins, it started importing coins from China. From the 14th to 16th centuries Japan minted coins (Toraisen and Shichusen) privately to meet with a growing demand. It began minting silver and gold coins referred to as Koshu Kin around the 15th century, which went on to become the country’s new standard currency.

The modern day yen came into effect in May 1871, and by December 1931 it shifted from the gold standard to the managed currency system.

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Value and exchange rates of the Japanese yen

After the devaluation of silver in 1873 the yen devalued against the US and Canadian dollar units because they followed the gold standard. By 1897 the Japanese yen valued at around USD0.50, and by adopting the gold standard in the same year 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 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.

There was no true exchange rate for the yen from December 1941 to April 1949 and inflation during the war got the yen to drop to a fraction of what it valued before the war. In April 1949, with the aim to stabilise prices in Japan, a United States plan making use of the Bretton Woods System fixed the value of the yen at one US dollar per 360 yen.

There was no change in this exchange rate until 1971, at which point the US stopped following the gold standard. The yen, by this point, had become largely undervalued. While imports began costing the Japanese too much, its exports sold for too little internationally. After the US devalued the dollar in 1971 the Japanese government agreed to a new fixed exchange rate, which stood at 308 yen per US dollar. Supply and demand pressures in the forex markets meant that the new rates were hard to maintain, and by 1973, most major countries adopted the floating currency system.

The 1970s saw business people in Japan as well as the country’s government concerned about the rise of the yen’s value. This, they figured, would make Japanese products less competitive and would have an adverse effect on the country’s industrial base, which, then, would hamper exports. The Japanese government, as a result, continued intervening in forex markets even after the yen adopted the floating system in 1973.

The yen climbed in value until the onset of the oil crises in 1973. From an average of around 271 yen per US dollar in 1973, its value dropped to in 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 got the yen to drop in value again, and in 1980 saw the US dollar trade at 227 yen.

The yen did not see any improvement 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.

Signing of the Plaza Accord in 1985 led to a change in fortunes for the yen. By 1988, it got to a peak of ¥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 temporarily almost the size as America’s.

The Japanese asset price bubble saw the yen decline in value, and it continued 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 saw a reversal in the yen’s depreciation trend, and the yen then gained 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.

1990 2000 2005 2010 2015
US dollar 144.91 105.05 103.17 91.37 118.47
Euro NA 106.37 135.59 130.51 138.22
Pound sterling 238.94 171.90 194.05 147.56 179.85
Canadian dollar 123.71 72.52 84.38 87.51 98.45
Chinese Renminbi yuan NA 12.69 12.45 13.37 19.28

All values are for the month of January, from respective years.

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History of the Japanese yen

In the 19th century, use of Spanish silver dollars was prevalent through South East Asia, Japan and the cost of China. These coins arrived on ships from Mexico to Manila, over a period of two and a half centuries. By the second half of the 19th century production of local coins to bear resemblance to Mexican pesos began, the first of which were silver Hong Kong dollars. The use of these Hong Kong dollars did not last for long, though.

Japan decided to officially adopt a silver coin named ‘yen’, which literally translates to ‘a round object’, in 1871. It began circulation by May of the same year. The yen, at that point, 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.

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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 one yen gold coins began in 1871, and copper one rin, as well as half, one and two sen coins followed in 1873. 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.

The Japanese Yen-003

The Japanese Yen-004

The Japanese Yen-005

Japan started issuing banknotes in 1872, and the denominations of these notes have always varied in between 10 yen and 10,000 yen. Different bodies in the country issued banknotes before and during the Second World War, which included the Imperial Japanese National Bank and the Ministry of Finance. Post war, only the Bank of Japan has 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.

The Japanese Yen-001

The Japanese Yen-002

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