Japanese yen: the story on HearLore

Japanese yen

The first gold yen coins struck in 1870 were minted at the San Francisco Mint, a fact that underscores the global reach of Japan's early modernization efforts. This decision to produce currency abroad was driven by the urgent need to establish a unified monetary system following the collapse of the Tokugawa shogunate. The Meiji government, led by figures like Okuma Shigenobu, sought to replace the chaotic mix of square coins and feudal paper currencies with a standardized decimal system. The new currency was defined as 1/3.586 grams of gold or 1/1.586 grams of silver, creating a clear link to precious metals that had previously been traded in mass as sycees in China. The transition from the old ryō, bu, and shu units to the single yen unit marked a decisive break from the past, unifying the gold-based economy of eastern Japan with the silver-based economy of the west. This unification was not merely administrative but a strategic move to halt the massive outflow of gold that had been draining the country's resources. The first coins, including 2, 5, and 20 yen denominations, were designed to be circular, a departure from the square shapes of traditional Japanese coinage, symbolizing a new era of openness and modernization. The Bank of Japan, founded in 1882, was granted a monopoly on controlling the money supply, ensuring that the state could manage the flow of currency and stabilize the economy. The introduction of the yen was a pivotal moment in Japanese history, transforming a fragmented feudal economy into a cohesive modern nation-state. The government's decision to adopt a decimal system, dividing the yen into 100 sen or 1,000 rin, aligned Japan with international standards and facilitated trade with Western powers. The early years of the yen were marked by economic turmoil, with the Satsuma Rebellion of 1877 causing massive inflation and a glut of non-redeemable fiat currency notes. The government's response was to suspend the issuance of national fiat banknotes in 1880, a move that would eventually lead to the establishment of a centralized banking system. The Bank of Japan began operations on the 10th of October 1882, with the authority to print banknotes that could be exchanged for the old Government and National Bank Notes. By May 1883, another act provided the redemption and retirement of national bank notes, and the National Bank Act was amended again in March 1896, providing for the dissolution of the national banks on the expiration of their charters. This amendment also prohibited national bank notes from circulating after the 31st of December 1899. In that year, Japan adopted a gold exchange standard, defining the yen as 0.75 g fine gold or US$0.4985. 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 Pacific War on the 7th of 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, marking the end of an era for these subsidiary coins.

Where were the first gold yen coins struck in 1870?

The first gold yen coins struck in 1870 were minted at the San Francisco Mint. This decision to produce currency abroad was driven by the urgent need to establish a unified monetary system following the collapse of the Tokugawa shogunate.

When did the Bank of Japan begin operations?

The Bank of Japan began operations on the 10th of October 1882. It was granted a monopoly on controlling the money supply to ensure that the state could manage the flow of currency and stabilize the economy.

What exchange rate did the Allied occupation government fix for the yen on the 25th of April 1949?

The Allied occupation government fixed the value of the yen at 360 yen per US dollar on the 25th of April 1949. This fixed rate was maintained until 1971 when the United States abandoned the gold standard.

How much did the yen rise to in 1988 after the Plaza Accord of 1985?

From its average of 239 yen per US dollar in 1985, the yen rose to a peak of 128 yen in 1988. This rapid appreciation made Japanese exports less competitive and damaged the industrial base.

What is the material composition of the 1 yen coin?

The 1 yen coin is made out of 100 percent aluminum and can float on water if placed correctly. This unique feature has made it a favorite among collectors.

When were the first coins of the Reiwa era minted?

The first coins of the Reiwa era were minted in July 2019. The reverse side of all coins shows the year of mintage in the regnal year of the reigning emperor rather than Gregorian calendar years.

War and Reconstruction

The collapse of the yen during World War II was a catastrophic event that saw the currency lose much of its pre-war value, plunging Japan into a debt crisis and hyperinflation. Between the 7th of December 1941, and the 25th of April 1949, no true exchange rate existed for the yen, as wartime inflation reduced it to a fraction of its prewar value. The Allied occupation government, led by General Douglas MacArthur, fixed the value of the yen at ¥360 per USD on the 25th of April 1949, through a plan that was part of the Bretton Woods system. This fixed rate was maintained until 1971, when the United States abandoned the gold standard, ending a key element of the Bretton Woods system. The abandonment of the gold standard set in motion changes that eventually led to floating exchange rates in 1973. The yen's value was pegged to the US dollar alongside other major currencies, but the system was fragile and prone to market pressures. The Smithsonian Agreement, signed at the end of 1971, temporarily reinstated a fixed exchange rate, setting the rate at ¥308 per US$. 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. The yen's journey from a fixed rate to a floating currency was a testament to the resilience of the Japanese economy, which managed to recover from the devastation of war and rebuild its financial systems. 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. This policy has helped to keep the exchange rate of the yen low compared to other currencies, particularly the US dollar. The yen's value has been influenced by a variety of factors, including the strength of the US economy and its labor market, while Japan continues to lag behind its peers to bring its economy back to its pre-pandemic size. Japan's trade balance staying in the red is also likely feeding into the weaker yen. The yen's history is a story of adaptation and survival, as it has navigated the turbulent waters of global economics and emerged as a major reserve currency.

The Plaza Accord and Bubble

The Plaza Accord of 1985 marked a dramatic turning point in the history of the yen, as finance officials from major nations signed an agreement affirming that the dollar was overvalued and the yen undervalued. This agreement, combined with 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$ in 1985, the yen rose to a peak of ¥128 in 1988, virtually doubling its value relative to the dollar. The rapid appreciation of the yen had profound implications for the Japanese economy, as it made Japanese exports less competitive and damaged the industrial base. The government and business people were concerned that a rise in the value of the yen would hurt export growth, and the government continued to intervene heavily in foreign-exchange markets, 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$ 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 per US$ to ¥300 per US$ 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 per US$ by 1980. The Plaza Accord was a pivotal moment in the history of the yen, as it set the stage for the asset price bubble that would eventually burst in the early 1990s. The bubble, which was fueled by easy credit and speculative investment, led to a dramatic rise in asset prices, particularly in real estate and stocks. The burst of the bubble in the early 1990s marked the beginning of the Lost Decade, a period of economic stagnation that would plague Japan for years to come. The yen's value has been influenced by a variety of factors, including the strength of the US economy and its labor market, while Japan continues to lag behind its peers to bring its economy back to its pre-pandemic size. Japan's trade balance staying in the red is also likely feeding into the weaker yen. The yen's history is a story of adaptation and survival, as it has navigated the turbulent waters of global economics and emerged as a major reserve currency.

The Carry Trade and Deflation

The carry trade, a practice where investors borrow yen at low interest rates and invest in currencies with higher returns, has been a significant factor in the yen's value since the 1990s. 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. This policy has helped to keep the exchange rate of the yen low compared to other currencies, particularly the US dollar. The carry trade has been a double-edged sword for Japan, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors.

Modern Interventions and Crises

The yen has been the subject of frequent interventions by the Bank of Japan and the Ministry of Finance in recent years, as authorities have sought to stabilize the currency and prevent excessive volatility. There were intermittent interventions from 1998 to 2003 and from 2010 to 2011 to curb excessive and speculative appreciation of the yen, and again in 2022 and 2024 to slow down speculative selling of the currency. The first two interventions were coordinated with respective countries, and the IMF has repeatedly stated that Japan is committed to a flexible exchange rate. The Bank of Japan conducted currency interventions of more than ¥9 trillion selling the dollar and buying the yen in the September, October 2022 and April, May 2024 periods respectively. These interventions were aimed at countering the rapid depreciation of the yen, which had been driven by a variety of factors, including the strength of the US economy and its labor market, while Japan continues to lag behind its peers to bring its economy back to its pre-pandemic size. Japan's trade balance staying in the red is also likely feeding into the weaker yen. The yen's value has been influenced by a variety of factors, including the strength of the US economy and its labor market, while Japan continues to lag behind its peers to bring its economy back to its pre-pandemic size. Japan's trade balance staying in the red is also likely feeding into the weaker yen. The yen's history is a story of adaptation and survival, as it has navigated the turbulent waters of global economics and emerged as a major reserve currency. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors.

Coins and Banknotes Design

The design of Japanese coins and banknotes is a testament to the country's rich cultural heritage and its commitment to innovation. The Japan Mint has issued legal tender coins from 1871 to the present, with denominations ranging from 1 yen to 10,000 yen. The 1 yen coin is made out of 100% aluminum and can float on water if placed correctly, a unique feature that has made it a favorite among collectors. The 500 yen coin, one of the highest-valued coins to be used regularly in the world, has been a favorite target for counterfeiters, resulting in the issuance in 2000 of the second nickel-brass 500 yen coin with added security features. Continued counterfeiting of the latter resulted in the issuance in 2021 of the third bi-metallic 500 yen coin with more improvements in security features. The obverse side of all coins shows the coin's value in kanji characters as well as the country name, while the reverse side shows the year of mintage, which is not shown in Gregorian calendar years, but instead in the regnal year of the reigning emperor. Imperial portraits have never appeared on Japanese coins, as the image of the emperor remains sacred. The regnal year does not necessarily align with the calendar year. The first coins of the Reiwa era were minted in July 2019. Banknotes feature portraits of notable figures from the Meiji period and later, such as Kitasato Shibasaburō, Umeko Tsuda, and Shibusawa Eiichi. The Series F banknotes, introduced on the 3rd of July 2024, feature Kitasato Shibasaburō and The Great Wave off Kanagawa, Umeko Tsuda and Wisteria flowers, and Shibusawa Eiichi and Tokyo Station. The Ministry decided to not redesign the ¥2000 note due to low circulation. The EURion constellation pattern is present in the Series D, E and F banknotes, a security feature that helps to prevent counterfeiting. The design of Japanese coins and banknotes is a reflection of the country's history and culture, as well as its commitment to innovation and security.

The Yen as Reserve Currency

The yen is the third-most traded currency in the foreign exchange market, after the United States dollar and the euro, and is also widely used as a third reserve currency after the US dollar and the euro. Its share of the Special Drawing Rights (SDR) valuation, an IMF basket of the world's major reserve currencies, has declined from 18% as of 2000 to 8.33% as of 2016. Despite this decline, the yen remains a significant player in the global financial system, as it is used by central banks and investors around the world to diversify their portfolios. The yen's status as a reserve currency is a testament to Japan's economic strength and stability, as well as its commitment to maintaining a flexible exchange rate. 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. This policy has helped to keep the exchange rate of the yen low compared to other currencies, particularly the US dollar. The yen's value has been influenced by a variety of factors, including the strength of the US economy and its labor market, while Japan continues to lag behind its peers to bring its economy back to its pre-pandemic size. Japan's trade balance staying in the red is also likely feeding into the weaker yen. The yen's history is a story of adaptation and survival, as it has navigated the turbulent waters of global economics and emerged as a major reserve currency. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors.

Future Challenges and Proposals

The future of the yen is uncertain, as Japan faces a variety of economic challenges, including deflation, an aging population, and a stagnant economy. Numerous proposals have been made since the 1990s to redenominate the yen by introducing a new unit or new yen, equal to 100 yen, and nearly worth one U.S. dollar. This has not happened to date, since the yen remains trusted globally despite its low unit value, and due to the large costs of reissuing new currency and updating currency-reading hardware. The negative impact of postponing upgrades to various computer software until redenomination occurs, in particular, was also cited. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The yen's future will depend on Japan's ability to address these challenges and to implement effective economic policies. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors. The carry trade has been a significant factor in the yen's value since the 1990s, as it has provided a source of income for investors but has also contributed to the depreciation of the yen. The Bank of Japan's decision to keep interest rates low was intended to spur economic growth and combat deflation, but it has had the unintended consequence of making the yen less attractive to investors.