Yen

Japanese 10 yen coin (obverse) showing Phoenix Hall of Byodoin

Yen is the currency used in Japan. It is also widely used as a reserve currency after the United States Dollar and Euro. In Japanese it is usually pronounced "en", but the pronunciation "yen" is standard in English. The ISO 4217 codes for the yen are JPY and 392. The Latinised symbol is ¥, while in Japanese it is written with the kanji 円.

History

The yen was introduced by the Meiji government in 1872 as a system resembling those in Europe; yen replaced the overly complex monetary system of the Edo period. The New Currency Act of 1871 stipulated the adoption of the decimal accounting system of yen (1, 圓), sen (1/100, 錢), and rin (1/1000, 厘), with the coins being round and cast as in the West. (The sen and the rin were eventually taken out of circulation in 1954.) While not a unit of official currency, for large quantities of yen the abbreviaton man (which means "ten thousand") is used, in the same way as values in the United States are often quoted or rounded off to thousands (given the yen's smaller value, it is much more common). The yen was legally defined as 0.8667 troy ounces (26.956 g) of silver. The Act also moved Japan onto the Gold Standard.

A 1,000 yen note, featuring the portrait of Natsume Soseki. New yen notes entered circulation, replacing these, on November 1, 2004.

The yen was pegged at 1 US dollar = ¥360 from April 25, 1949, to until 1971 when the Bretton Woods system collapsed and the value of the Yen began to float. As of August 2005, there are about ¥110 to the US dollar, about ¥135 to the Euro, and about ¥199 to the pound sterling. After the Plaza Accord of 1985, the yen appreciated against the dollar. Japan has become so used to the appreciation, it has coined the term endaka, or appreciation of the yen, and has employed the Bank of Japan to intervene to reduce its value, a tactic recently copied by much the rest of the Far East.

The yen was originally written in the same way in Kanji as the yuan (圓 pinyin yuán), the Chinese unit for currency. Modern Japanese writings now use a character (円) which is different from the one commonly used (as shorthand) in Chinese (元). The Latinized symbol for the Yen however, is identical to the one for the Renminbi, although the PRC tends to use one crossbar instead of two.

Yen literally means a "round object" in Japanese, as it does in Chinese.

The spelling and pronunciation with the letter y are based on romanization of an obsolete writing of the word. The same combination occurs in words such as Uyeda, Yebisu, Iyeyasu and Inouye. Like the spellings of names of people outside Japan, the romanization of yen has become a permanent feature.

Denominations

Coins

The 5-yen and 50-yen coins are holed. The date is on the reverse of all coins, and, in most cases, the name Nihonkoku (Japan) is also on the reverse, except for the 1- and 5-yen where it is on the obverse. The obverse of all coins contains the value in kanji.

The first 1-yen coin (excluding early silver coins) was introduced in 1955, the first 5-yen coin (excluding early gold coins) in 1948, and originally had no hole. The first 10-yen was introduced in 1951, the first 50-yen in 1955 (with no hole), the first 100-yen in 1957 (originally made out of silver). The 500-yen coin was introduced in 1982 [3].

500 yen coins are probably the highest valued coins to be used regularly in the world (US$4.77, €3.59, £2.49). The United States's largest-valued commonly-used coin (25¢) is worth 26 yen; the Eurozone's largest (€2) is worth ¥279, and the United Kingdom's largest (£2) is worth ¥402 (as of March 2005). The highest valued bill, the 10,000 yen bill, is worth just a little bit less than the U.S. $100 bill, the highest denomination of currently circulating U.S. currency.

On various occasions, commemorative coins are minted using gold and silver with various face values, up to 100,000 yen [4]. Even though they can be used, they are treated as collectibles.

Banknotes

The first 1,000 yen bill was introduced January 7, 1950, the first 5,000 yen October 1, 1957, and the first 10,000 yen December 1, 1958.

The 5- and 10-yen banknotes were discontinued on April 1, 1955, the 1- and 50-yen banknotes on April 1, 1958, the 100-yen banknote on August 1, 1974, and the 500-yen banknote on April 1, 1994 [6]

Value

The relative value of the yen is determined in foreign exchange markets by the 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 (buying yen-denominated real and financial assets).

In 1949 the value of the yen was set 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 convertibility of the dollar to gold, 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.

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.

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.

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 (buying or selling dollars), 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 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 reemergence of trade surpluses drove the yen back up to ¥211 in 1978. This currency strengthening was again reversed by the second oil shock, with the yen dropping to ¥227 by 1980.

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 (mainly dollars) 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.

In 1985 a dramatic change began. Finance officials from major nations signed an agreement (the Plaza Accord) affirming that the dollar was overvalued (and, therefore, the yen undervalued). 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.

The yen's increased value made Japanese exports less price competitive and imports more price competitive, which should have brought down the value of trade and current account surpluses. The current account figures discussed earlier, however, indicated that such a response was slow. The strong appreciation of the yen began in 1985, but the current account continued to rise until 1987. Its decline in 1988 was rather small, although it experienced a more substantial decline in 1989.

Exchange rates over time

The table below shows the number of yen per U.S. dollar.

The table below shows the number of yen per Pound Sterling (rounded to the nearest yen).

See also

• Japanese Military Yen
• Capital flows in Japan
• Monetary and fiscal policy of Japan
• Balance of payments accounts of Japan (1960-90)

External links

• Japanese currency FAQ in Currency Museum, Bank of Japan
• Chart: US-Dollar in Yen
• Chart: 100 Yen in Euro
• Banknotes of Japan

Reference

This article incorporates public domain text from the Library of Congress Country Studies.