The Japanese yen is the official currency of Japan. It is the third most traded currency
in the foreign exchange market after the United States dollar and the euro. It is also widely
used as a reserve currency after the U.S. dollar, the euro, and the pound sterling.
Pronunciation and etymology Yen is pronounced "en" [eɴ] in Japanese.
The word literally means "round" in Japanese, as yuán does in Chinese or won in Korean.
Originally, Chinese had traded silver in mass and when Spanish and Mexican silver coins
arrived, the Chinese called them 銀圓 for their circular shapes. The coins and the name
also appeared in Japan. Later, the Chinese replaced 圓 with 元 which has the same pronunciation
in Mandarin. The Japanese preferred 圓 which remains until now.
The spelling and pronunciation "yen" is standard in English. This is because mainly English
speakers who visited Japan at the end of the Edo period to the early Meiji period spelled
words this way. ゑん in historical kana orthography. In the 16th century, Japanese
(え) and (ゑ) both had been pronounced [je] and Portuguese missionaries had spelled them
"ye". Some time thereafter, by the middle of the 18th century, and came to be pronounced
[e] as in modern Japanese, although some regions retain the [je] pronunciation. Walter Henry
Medhurst, who had not come to Japan and met any Japanese, having consulted mainly a Japanese-Dutch
dictionary, spelled some "e"s as "ye" in his An English and Japanese, and Japanese and
English Vocabulary. In the early Meiji era, James Curtis Hepburn, following Medhurst,
spelled all "e"s as "ye" in his A Japanese and English dictionary. That was the first
full-scale Japanese-English/English-Japanese dictionary, which had a strong influence on
Westerners in Japan and probably prompted the spelling "yen". Hepburn revised most of
"ye"s to "e" in the 3rd edition in order to mirror the contemporary pronunciation, except
"yen". This was probably already fixed and has remained so ever since.
History
Introduction of the yen
In the 19th century silver Spanish dollar coins were common throughout Southeast Asia,
the China coast, and Japan. These coins had been introduced through Manila over a period
of two hundred and fifty years, arriving on ships from Acapulco in Mexico. These ships
were known as the Manila galleons. Until the 19th century these silver dollar coins were
actual Spanish dollars minted in the new world, mostly at Mexico City. But from the 1840s
they were increasingly replaced by silver dollars of the new Latin American republics.
In the later half of the 19th century some local coins in the region were made in the
likeness of the Mexican peso. The first of these local silver coins was the Hong Kong
silver dollar coin that was minted in Hong Kong between the years 1866 and 1869. The
Chinese were slow to accept unfamiliar coinage and preferred the familiar Mexican dollars,
and so the Hong Kong government ceased minting these coins and sold the mint machinery to
Japan.
The Japanese then decided to adopt a silver dollar coinage under the name of 'yen', meaning
'a round object'. The yen was officially adopted by the Meiji government in an Act signed on
May 10, 1871. The new currency was gradually introduced beginning from July of that year.
The yen was therefore basically a dollar unit, like all dollars, descended from the Spanish
Pieces of eight, and up until the year 1873, all the dollars in the world had more or less
the same value. The yen replaced Tokugawa coinage, a complex monetary system of the
Edo period based on the mon. The New Currency Act of 1871 stipulated the adoption of the
decimal accounting system of yen, sen, and rin, with the coins being round and manufactured
using Western machinery. The yen was legally defined as 0.78 troy ounces of pure silver,
or 1.5 grams of pure gold, hence putting it on a bimetallic standard.
Following the silver devaluation of 1873, the yen devalued against the US dollar and
the Canadian dollar units since they adhered to a gold standard, and by the year 1897 the
yen was worth only about US$0.50. In that year, Japan adopted a gold exchange standard
and hence froze the value of the yen at $0.50. This exchange rate remained in place until
Japan left the gold standard in December 1931, after which the yen fell to $0.30 by July
1932 and to $0.20 by 1933. It remained steady at around $0.30 until the start of the Second
World War on 7 December 1941, at which time it fell to $0.23.
(The sen and the rin were eventually taken out of circulation at the end of 1953.)
Fixed value of the yen to the US dollar No true exchange rate existed for the yen
between 7 December 1941 and 25 April 1949; wartime inflation reduced the yen to a fraction
of its pre-war value. After a period of instability, on 25 April 1949 the U.S. occupation government
fixed the value of the yen at ¥360 per US$1 through a United States plan, which was part
of the Bretton Woods System, to stabilize prices in the Japanese economy. That exchange
rate was maintained until 1971, when the United States abandoned the gold standard, which
had been a key element of the Bretton Woods System, and imposed a 10 percent surcharge
on imports, setting in motion changes that eventually led to floating exchange rates
in 1973. Undervalued yen
By 1971 the yen had become undervalued. Japanese exports were costing too little in international
markets, and imports from abroad were costing the Japanese too much. This undervaluation
was reflected in the current account balance, which had risen from the deficits of the early
1960s to a then-large surplus of US$5.8 billion in 1971. The belief that the yen, and several
other major currencies, were undervalued motivated the United States' actions in 1971.
Yen and major currencies float Following the United States' measures to devalue
the dollar in the summer of 1971, the Japanese government agreed to a new, fixed exchange
rate as part of the Smithsonian Agreement, signed at the end of the year. This agreement
set the exchange rate at ¥308 per US$1. However, the new fixed rates of the Smithsonian Agreement
were difficult to maintain in the face of supply and demand pressures in the foreign-exchange
market. In early 1973, the rates were abandoned, and the major nations of the world allowed
their currencies to float. Japanese government intervention in the currency
market In the 1970s, Japanese government and business
people were very concerned that a rise in the value of the yen would hurt export growth
by making Japanese products less competitive and would damage the industrial base. The
government therefore continued to intervene heavily in foreign-exchange marketing, even
after the 1973 decision to allow the yen to float.
Despite intervention, market pressures caused the yen to continue climbing in value, peaking
temporarily at an average of ¥271 per US$1 in 1973 before the impact of the 1973 oil
crisis was felt. The increased costs of imported oil caused the yen to depreciate to a range
of ¥290 to ¥300 between 1974 and 1976. The re-emergence of trade surpluses drove the
yen back up to ¥211 in 1978. This currency strengthening was again reversed by the second
oil shock in 1979, with the yen dropping to ¥227 by 1980.
Yen in the early 1980s During the first half of the 1980s, the yen
failed to rise in value even though current account surpluses returned and grew quickly.
From ¥221 in 1981, the average value of the yen actually dropped to ¥239 in 1985. The
rise in the current account surplus generated stronger demand for yen in foreign-exchange
markets, but this trade-related demand for yen was offset by other factors. A wide differential
in interest rates, with United States interest rates much higher than those in Japan, and
the continuing moves to deregulate the international flow of capital, led to a large net outflow
of capital from Japan. This capital flow increased the supply of yen in foreign-exchange markets,
as Japanese investors changed their yen for other currencies to invest overseas. This
kept the yen weak relative to the dollar and fostered the rapid rise in the Japanese trade
surplus that took place in the 1980s. Effect of the Plaza Accord
In 1985 a dramatic change began. Finance officials from major nations signed an agreement affirming
that the dollar was overvalued. This agreement, and shifting supply and demand pressures in
the markets, led to a rapid rise in the value of the yen. From its average of ¥239 per
US$1 in 1985, the yen rose to a peak of ¥128 in 1988, virtually doubling its value relative
to the dollar. After declining somewhat in 1989 and 1990, it reached a new high of ¥123
to US$1 in December 1992. In April 1995, the yen hit a peak of under 80 yen per dollar,
temporarily making Japan's economy nearly the size of the US.
Post-bubble years The yen declined during the Japanese asset
price bubble and continued to do so afterwards, reaching a low of ¥134 to US$1 in February
2002. The Bank of Japan's policy of zero interest rates has discouraged yen investments, with
the carry trade of investors borrowing yen and investing in better-paying currencies
estimated to be as large as $1 trillion. In February 2007 The Economist estimated that
the yen was 15% undervalued against the dollar, and as much as 40% undervalued against the
euro. After the global economic crisis of 2008
However, this trend of depreciation reversed after the global economic crisis of 2008.
Other major currencies except the Swiss franc have been declining relative to the yen.
On April 4, 2013 the Bank of Japan announced that they would expand their Asset Purchase
Program by $1.4t USD in two years. The Bank of Japan hopes to bring Japan from deflation
to inflation, aiming for 2% inflation. The amount of purchases is so large that it is
expected to double the money supply. But this move has sparked concerns that the authorities
in Japan deliberately devalue yen in order to boost export. However, the commercial sector
in Japan worried that the devaluation would trigger an increase in import prices, especially
in energy and raw materials. On May 9, 2013, the currency weakened to 100
yen for every US dollar for the first time since April 2009.
Coins
Coins were introduced in 1870. There were silver 5, 10, 20 and 50 sen and 1 yen, and
gold 2, 5, 10 and 20 yen. Gold 1 yen were introduced in 1871, followed by copper 1 rin,
½, 1 and 2 sen in 1873.
Cupronickel 5 sen coins were introduced in 1889. In 1897, the silver 1 yen coin was demonetized
and the sizes of the gold coins were reduced by 50%, with 5, 10 and 20 yen coins issued.
In 1920, cupro-nickel 10 sen coins were introduced. Production of silver coins ceased in 1938,
after which a variety of base metals were used to produce 1, 5 and 10 sen coins during
the Second World War. Clay 5 and 10 sen coins were produced in 1945 but not issued for circulation.
After the war, brass 50 sen, 1 and 5 yen were introduced between 1946 and 1948. In 1949,
the current type of holed 5 yen was introduced, followed by bronze 10 yen in 1951.
Coins in denominations of less than 1 yen became invalid on December 31, 1953, following
enforcement of the Small Currency Disposition and Fractional Rounding in Payments Act.
In 1955 the current type of aluminium 1 yen was introduced, along with unholed, nickel
50 yen. In 1957, silver 100 yen pieces were introduced. These were replaced in 1967 by
the current, cupro-nickel type, along with the holed 50 yen coin. In 1982 the first 500
yen coins were introduced. The date is on the reverse of all coins, and,
in most cases, country name and the value in kanji is on the obverse, except for the
present 5-yen coin where the country name is on the reverse.
As of April 2011 the 500 yen coin was the highest-valued coin to be used regularly in
the world, with value of over US$6. Because of this high face value, the 500 yen coin
has been a favorite target for counterfeiters; it was counterfeited to such an extent that
in 2000 a new series of coins was issued with various security features, but counterfeiting
continued. The 1 yen coin is made out of 100% aluminum
and can float on water if placed correctly. On various occasions, commemorative coins
are minted, often in gold and silver with face values up to 100,000 yen. The first of
these were silver ¥100 and ¥1000 Summer Olympic coins issued on the occasion of the
1964 games. Recently this practice is undertaken with the 500 yen coin, the first two types
were issued in 1985 in commemoration of the science and technology exposition in Tsukuba
and the 100th anniversary of the Governmental Cabinet system. The current commemorative
500 and 1000 yen coin series honouring the 47 prefectures of Japan commenced in 2008,
with 47 unique designs planned for each denomination. Only one coin per customer is available from
banks in each prefecture. 100,000 of each 1000 yen silver coin have been minted. Even
though all commemorative coins can be spent like ordinary coins, they are not seen often
in typical daily use and normally do not circulate. Instead of displaying the CE year of mintage
like most nations' coins, yen coins instead display the year of the current emperor's
reign. For example, a coin minted in 2009 would bear the date Heisei 21.
Due to the great differences in style, size, weight and the pattern present on the edge
of the coin they are very easy for people with visual impairments to tell apart from
one another. Banknotes
The issuance of the yen banknotes began in 1872, two years after the currency was introduced.
Throughout its history, the denominations have ranged from 10 yen to 10000 yen.
Before and during World War II, various bodies issued banknotes in yen, such as the Ministry
of Finance and the Imperial Japanese National Bank. The Allied forces also issued some notes
shortly after the war. Since then, the Bank of Japan has been the exclusive note issuing
authority. The bank has issued five series after World War II. Series E, the current
series, consists of ¥1000, ¥2000, ¥5000, and ¥10,000.
Determinants of value Beginning in December 1931, Japan gradually
shifted from the gold standard system to the managed currency system.
The relative value of the yen is determined in foreign exchange markets by the economic
forces of supply and demand. The supply of the yen in the market is governed by the desire
of yen holders to exchange their yen for other currencies to purchase goods, services, or
assets. The demand for the yen is governed by the desire of foreigners to buy goods and
services in Japan and by their interest in investing in Japan.
Since the 1990s, the Bank of Japan, the country's central bank, has kept interest rates low
in order to spur economic growth. Short-term lending rates have responded to this monetary
relaxation and fell from 3.7% to 1.3% between 1993 and 2008. Low interest rates combined
with a ready liquidity for the yen prompted investors to borrow money in Japan and invest
it in other countries. This has helped to keep the value of the yen low compared to
other currencies. International reserve currency
The percental composition of currencies of official foreign exchange reserves since 1995:
SDR basket The special drawing rights valuation is an
IMF basket of currencies, including the Japanese yen. The SDR is linked to a basket of currencies
with 41.9% for the dollar, 37.4% for the euro, 11.3% for the pound sterling, and 9.4% for
the yen. The percentage for the yen has however declined from 18% in 2000. The exchange rate
for the Japanese yen is expressed in terms of currency units per U.S. dollar; other rates
are expressed as U.S. dollars per currency unit. The SDR currency value is calculated
daily and the valuation basket is reviewed and adjusted every five years. The SDR was
created in 1969 to support the fixed exchange system.
Historical exchange rate The table below shows the monthly average
of the U.S. dollar/Yen spot rate at 17:00 JST.
See also
Japan Mint Japanese military yen
Economy of Japan Capital flows in Japan
Monetary and fiscal policy of Japan Balance of payments accounts of Japan
Older currency Japanese mon
Koban Ryō
Wadōkaichin Notes
This article incorporates public domain material from websites or documents of the
Library of Congress Country Studies.
Further reading
External links Japanese Yen on Wikinvest
Japanese currency FAQ in Currency Museum, Bank of Japan
Money in Japan. A guide while traveling. Images of historic and modern Japanese bank
notes Chart: US-Dollar in Yen)
Chart: 100 Yen in Euro