Japanese Yen – Currency Overview

• ISO Code: JPY
• Symbol: ¥
• Subunit: 1/100 Sen
• Inflation: 0.0%
• Nickname: ----

Historical Overview

Japan first adopted the idea of coinage from China, with the imperial court of Nara issuing coins in AD 708. The coins did not catch on and did not make a comeback until Japan imported the coins that China replaced with paper currency in the 13^th century. Most of Japan's coins were imported from China until 1606, when the Tokugawa Shoguns rose to power and began issuing Japanese coins that imitated their Chinese precursors.

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Until the 1868 Meiji Restoration, Japan got along without a fixed monetary system, with over 60 different coins circulated in 1600. Periodically the different Japanese governments would attempt to fix the rates of exchange between different coins, but these had little long-term impact.

In 1858, Japan signed a treaty regarding navigation and commerce with the United States, which set an exchange rate of 1 US Dollar = 0.75 Ryo. After the Meiji Restoration, the Yen (JPY) was instated as the Japanese national currency and set at par with the US Dollar. The Yen is divisible into 100 Sen or 1000 Ren, and its romanized symbol is ¥.

Current Global Status

Starting in 1931, Japan abandoned the gold standard system in favor of the managed currency system. The relative value of the yen in the foreign exchange market is arbitrated by the economic forces of supply and demand. The supply of Japanese yen is determined by the yen holders' desire to exchange their yen for other currencies in order to buy goods and services. The demand for the Japanese yen is determined by the desire of foreigners to purchase Japanese goods and services and by their willingness to investing in Japan.

In the foreign exchange market, the yen is the third most-traded currency after the US dollar and the euro. It is also a major reserve currency, coming in fourth after the US dollar, the euro and the pound sterling. Large amounts of yen are often counted in multiples of 10,000, similarly to the way that values in the US are commonly rounded off to hundreds or thousands.

Against the US Dollar

In 1949, due to the value loss the yen suffered during and after the WWII the value of the yen was fixed at ¥360 per US$1 as part of the Bretton Woods System, in order to stabilize the Japanese economy. This rate was maintained up until 1971, the year in which the US abandoned the gold standard, a decision which eventually led to floating exchange rates in 1973. In the early 1980s, the value of the yen dropped rapidly, hitting a low of ¥239 in 1985, due to the large net outflow of capital from Japan. This trend changed dramatically in 1985 when finance officials from major nations signed the Plaza Accord which affirmed that the dollar was overvalued. The agreement, along with shifting supply and demand dynamics in the markets, led to a speedy rise in the value of the yen, peaking at of ¥128 in 1988. In early 1995, the yen reached a record high of less than 80 yen per dollar, temporarily rendering Japan's economy almost the size of the US. In the 2000s the yen suffered the Japanese asset price bubble which led to a prolonged decline, reaching a low of ¥134 to US$1 in 2002. Japan's policy of null interest rates discouraged yen investors, and drove them to invest in better-paying currencies. In February 2007, The Economist gauged that the yen is 15% undervalued against the US dollar.

Against the Euro

The aftermath of the Japanese asset price bubble led to the yen's decline against all major currencies. In February 2007, The Economist gauged that the yen is as much as 40% undervalued against the Euro.

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