What is the Japanese Yen?
The Japanese Yen (円) is the official currency of Japan. It is symbolized by ¥ and denoted by JPY. The yen is a major player on the world stage, ranking as the third most-traded currency after the US dollar ($) and the euro (€). It is also the third most commonly held reserve currency, after the US dollar and the euro.
You will see the ¥ or JPY sign at most currency exchange offices (bureau de change) of major cities and if you follow international financial news.
The Cambridge Dictionary has the following definition of the Japanese yen, plus an example of the word used in a sentence:
“1. The standard unit of money used in Japan. 2. The value of the yen, used in comparing the values of different types of money from around the world. Example Sentence: ‘The yen fell/rose against (= was worth less/more compared to) the dollar today.'”
Brief history of the yen
The yen was first introduced on May 10, 1871. Japan’s New Currency Act of 1871 established the yen as the new decimal currency of Japan. It replaced a variety of local forms of money. A decimal currency is one where the main unit is divided into smaller units by factors of 10, typically 100 subunits.
The Japanese government adopted the new currency as a measure to modernize its economy and bring it in line with Western monetary systems.
In Japanese, the currency is called “en (円),” which means “round object” or “circle,” reflecting the shape of the coinage.
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Value
After World War II, the yen’s value declined significantly. To achieve stability, the currency was pegged to the US dollar in April 1949 at a rate of 360 to $1. This continued until the Bretton Woods system was abandoned in 1971.
Since 1971, the yen has been a free-floating currency in the foreign exchange market.
As you can see on this graph, from 1971 to the late 1980s, the yen appreciated in value considerably against the US dollar, before stabilizing in subsequent years.
Denominations
Yen banknotes come in denominations of:
- ¥1,000
- ¥2,000
- ¥5,000
- ¥10,000
Coins come in denominations of:
- ¥1
- ¥5
- ¥10
- ¥50
- ¥100
- ¥500
Each denomination is distinguishable by its size, color, and design. The ¥5 coin has a hole in the center.
The design of having a hole in the coin in Japan dates back to the Edo period. The “Kan’ei Tsūhō” (寛永通宝) copper coin, which was introduced in the early 17th century, was the country’s first coin with a hole.
Yen’s role in international trade and investment
Japan’s currency does not just stay within the country’s borders; it travels globally and plays a key role in international trade and investment.
Japan is a major exporter of goods, including electronics, machinery, pharmaceuticals, and automobiles. When a country imports these products, it often pays in yen.
The demand for Japanese exports means there is also demand for its currency, as buyers need it to complete their purchases. The more countries want what Japan sells, the more valuable the yen tends to become.
If the yen rises in value, so do the prices of Japanese goods worldwide. Conversely, Japanese people and companies can purchase foreign goods and invest in other countries more cheaply.
The yen is a safe-haven currency
The Japanese yen is considered a ‘safe-haven’ currency, alongside the US dollar, the Swiss franc, and to some extent, the euro. This means that investors turn to it during times of economic uncertainty.
This is because Japan has a modern history of political and economic stability. It has a hard currency.