THE Japanese Yen (JPY), represented by the symbol ¥ is the third most actively traded currency in the world after the United States Dollar and the European Community’s Euro. It is the official monetary unit of Japan and is also used by many countries as a foreign currency reserve.
Recognized by its symbol JPY, the Japanese Yen follows the decimal accounting system wherein one JPY is made up of a hundred (100) sen although the amount is so small it is used mainly by those involved in the financial system.
Since Japan is heavily into exports, the JPY exerts a strong influence on the country’s economy and the world as a whole. The strength of the JPY is taken very seriously by the national government so much so that the Bank of Japan or the BoJ, the Japanese central bank, monitors the JPY’s trade very closely and intervenes in the open market often to prevent any drastic negative effects.
In extreme cases, The BoJ coordinates monetary operations with the world’s most influential central banks to fight speculators and abnormal fluctuations of the JPY. In March 18, 2011, a week after the devastating earthquake and tsunami that hit Japan, G-7 central banks sold an estimated $25 Billion worth of JPY to stop the sudden and suspicious rise of the currency believed to have been the work of speculators who wanted to take advantage of Japan’s disaster-related problems.
A Brief History of the JPY
Before it opened up to the rest of the world in the mid-19th century, feudal Japan operated a number of currency systems that was not only inefficient but also too complex and chaotic to manage as well. Local fiefdoms created their own currencies while those engaged in international trade used a mixture of Chinese and even Mexican silver dollars to transact business.
In 1871, with the restoration of the full powers of the emperor or the Meiji Restoration, the Yen (meaning, round object) was finally instituted as the official and national currency of the country that would follow the Western practice by virtue of the New Currency Act.
The new currency law specifically defined it as 24.6 grams of silver or 1.5 grams of gold. The JPY replaced all previous monetary units and effectively solidified the economic and financial power of the imperial government which previously was beholden to a dynasty or line of warlords called the shoguns.
Because the JPY was originally intended to be the Japanese equivalent to the silver dollar, its value was set at the rate same as that of a dollar on ¥1 is to $1 exchange rate. However, in 1873 following the lowering of the value of silver and the shift of Western countries to the gold standard, the JPY was allowed to devalue and in 1897, Japan likewise embraced the gold standard bringing the rate to ¥0.50 to $1 which was to remain so for several decades.
After World War II and subsequent American occupation of Japan, the JPY’s value was now pegged at ¥360 to US$1. This low exchange rate proved to be a blessing to Japan as it helped reconstruct its country and boost its economy. Japanese exports were now much cheaper while the high dollar rate discouraged importation resulting to a growing trade surplus at the end of the 1960s.
By the early 1970s, following serious concerns raised by Japan’s trade partners, the JPY was allowed to float although the Japanese government still kept the currency from strengthening too rapidly by intervening in the market (buying or selling JPY) from time to time. The oil crisis in the mid and late 70s also kept the JPY from rising too fast despite Japan’s bulging trade surpluses.
From 1985 onwards, the JPY gained strength after major economic players decided that the U.S. Dollar was undervalued and measures were taken to reflect this agreement. As a result of this agreement (also known as the Plaza Agreement) and in recognition of Japan’s economic strength, performance and influence, many countries have taken to the JPY as a foreign currency reserve along with the USD.
JPY Coins and Bank Notes
The 1990s saw Japan’s economy slowing down and at times even contracting as the Japanese real estate bubble burst. The government used zero interest rates and encouraged overseas investment to keep the JPY from strengthening too much.
Shortly after the JPY was introduced to the Japanese public, the government started issuing coins and after two years, bank notes were also circulated. Gold was used for ¥2, 5, 10 and 20 denominations while the sen (equivalent to cents) and ¥1 coins had silver.
Later on, cooper coins were also adopted by although these were later discontinued. By the mid-1950s, coins lower than one JPY was no longer allowed and subsequently the first aluminum series of coins were issued which are in use up to this day.
The first JPY paper money bills were created in 1873. The denominations range from ¥10 up to ¥10,000. Today, JPY bank notes are printed in the amounts of ¥1000, ¥2,000, ¥5,000 and ¥10,000.
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