Japanese Yen
Overview
The Japanese yen (日本円, Japanese Yen) is Japan's official currency and one of the world's major reserve currencies. Its symbol is ¥ (or 円), its ISO 4217 code is JPY, and its issuing authority is the Bank of Japan (BOJ). It is the second most traded currency in the foreign exchange market after the US dollar, and it is also a constituent currency of the International Monetary Fund (IMF) Special Drawing Rights (SDR) basket. Its representative characteristics are the yen carry trade, which is based on the low interest rate environment, and its safe-haven nature, which tends to strengthen in times of crisis.
Main Content
History and Institutional Changes
The modern yen was introduced in 1871 through the Meiji government's New Currency Regulation (新貨條例) and aimed at a gold standard of 1 yen = 1 dollar. The gold standard was established in 1897, but Japan left it in 1931 when gold exports were banned. In 1949, after World War II, a fixed exchange rate system of 1 dollar = 360 yen was adopted; after the fixed exchange rate system was shaken by the 1971 Nixon Shock, Japan switched to a floating exchange rate system in 1973. After the 1985 Plaza Accord, the yen appreciated rapidly, soaring to around 79 yen per dollar in 1995. Subsequently, through the collapse of the bubble economy in the 1990s and long-term deflation, an ultra-low interest rate and quantitative easing system became entrenched.
Currency Units and Issuance
There were subsidiary units, the sen (銭, one hundredth of a yen) and the rin (厘), but they are no longer in circulation. Coins are mainly 1, 5, 10, 50, 100, and 500 yen; banknotes are mainly 1000, 5000, and 10000 yen, while the 2000 yen note is issued in very small quantities. In July 2024, new banknotes were issued for the first time in 20 years, featuring Shibusawa Eiichi on the 10,000 yen note, Tsuda Umeko on the 5,000 yen note, and Kitasato Shibasaburo on the 1,000 yen note, and they were the world's first to use 3D holograms.
Exchange Rate and Monetary Policy
The Bank of Japan has implemented large-scale quantitative and qualitative easing (QQE) since 2013, and in 2016 introduced yield curve control (YCC) and a negative interest rate policy. This acted as a factor in yen weakness for a long time, and in 2022 and 2024 the yen weakened to around 160 yen per dollar. The Japanese government and the Bank of Japan have suppressed sharp fluctuations through verbal intervention and actual market intervention.
International Status
The yen accounts for about 7–8% of the SDR basket and is used as a major reserve currency in the foreign exchange reserves of various countries. The yen carry trade, in which low-interest yen is borrowed and invested in higher-yielding assets, is a key pillar of global liquidity, and there have been cases in which a sharp rise in the yen during the 1997 Asian financial crisis and the 2008 financial crisis put pressure on emerging market financial markets. It also has a direct impact on the Korean economy's export competitiveness and trade balance through the won-yen exchange rate.
Latest Trends
In March 2024, the Bank of Japan raised interest rates for the first time in 17 years, ending its negative interest rate policy, and in July of the same year it additionally raised the policy rate to 0.25%. As a result, the unwinding of the yen carry trade proceeded rapidly, and global financial markets were greatly shaken, with the Nikkei index plunging by the largest margin in history on August 5, 2024. In January 2025, the Bank of Japan raised the policy rate to 0.5%, the highest level in about 17 years, and suggested the possibility of further hikes based on wage growth and inflation trends. Meanwhile, as US tariff policy, the US-Japan interest rate differential, and Japan's fiscal expansion stance combined, yen volatility expanded, and the currency repeatedly fluctuated in the 140–160 yen per dollar range. In Japan, the expansion of cashless payments, the circulation of new banknotes, and demonstration experiments for a digital yen (CBDC) are proceeding in parallel, and debate continues over the yen's reserve currency status and the benefits and side effects of a weak yen.
Related Topics
- [[Bank of Japan]]
- [[Exchange rate]]
- [[Yen carry trade]]
- [[Plaza Accord]]
- [[Japanese economy]]
- [[Reserve currency]]