What Is JPY (Japanese Yen)?
JPY stands for the Japanese yen, the official currency of Japan, symbolized by a capital Y with two horizontal lines through it: ¥.
Key Takeaways
- The Japanese yen is the world’s third-most traded currency, after the U.S. dollar and the euro.
- Traditionally a safe haven, the yen dropped to a 24-year low against the dollar in mid-2022.
- This drop was driven by the Bank of Japan’s (BoJ) decision not to raise interest rates like other central banks.
- The BoJ has set a 2% inflation target to combat decades of deflation.
Understanding JPY (Japanese Yen)
The yen ranks third globally in the foreign exchange market after the U.S. dollar (USD) and the euro, accounting for 16.8% of foreign currency trades in 2019. While the dollar forms 88.3% and the euro 32.3%.
Official foreign exchange reserves also place the yen a distant third. As of Q4 2021, dollar reserves exceeded yen reserves by a factor of more than ten.
Japan’s current account surplus, due to its net exporter status, limits the international accumulation of yen.
JPY Denominations
Coins of 1, 5, 10, 50, 100, and 500 yen exist alongside ¥1,000, ¥2,000, ¥5,000, and ¥10,000 banknotes. The Japanese often tally sums in multiples of 10,000 yen instead of 1,000, as seen with dollars or euros.
Exciting changes are scheduled for 2024, with new yen notes featuring prominent historical figures including Eiichi Shibusawa on the 10,000 yen note, Umeko Tsuda on the 5,000 yen note, and Shibasaburo Kitasato on the 1,000 yen note. The new bills will also include 3D holograms.
History of the Japanese Yen
Deriving from “en” which means circle or round object, the yen was adopted in 1871 under the Meiji government, replacing the metal coinage and paper scrip of the Tokugawa shogunate.
The Bank of Japan (BoJ) became the sole issuer of the yen in 1884. The yen was pegged to the U.S. dollar in 1949, only to float in 1973 after the Bretton Woods system collapsed.
The 1985 Plaza Accord devalued the dollar, doubling the yen’s value by 1988. Recent strategies include a 2% inflation target and aggressive quantitative easing to address deflation.
JPY’s Safe Haven Status
The yen is often seen as a safe haven, appreciating in value during market volatility. Low domestic interest rates drive Japanese entities towards higher yields overseas, known as the carry trade. This dynamic usually strengthens the yen in stressful times.
However, in mid-2022, the yen depreciated to a 24-year low against the U.S. dollar due to the BoJ’s near-zero policy rate versus the Federal Reserve’s rising federal funds rate. Higher consumer prices due to this depreciation also became a political issue in Japan.
- JPY/USD as of Aug. 4, 2022: 133.25
Trading Japanese Yen
While expert currency traders may find yen trading profitable due to its leverage and complexity, amateurs should proceed with caution. Yen ETFs provide an easier entry point, involving yen-backed assets such as short-term debt and bonds. However, these do carry currency risk.
How Do I Convert a Japanese Yen Value Into U.S. Dollars?
To convert yen to U.S. dollars, divide the sum by the current exchange rate. For example, with a rate of 133.25, ¥10,000 equates to approximately $75.04.
Where Is the Best Place to Buy Japanese Yen?
For purchasing yen, large branches of national banks such as Chase, Bank of America, or Wells Fargo are recommended. Airport exchange outlets are convenient but often have wider buy/sell spreads.
What Has Been Causing the Decline in the Japanese Yen?
The decline in the yen stems from expectations that the BoJ will maintain its low policy rate despite rising inflation. By June 2022, the BoJ had acquired more than half of Japan’s government bonds to curb interest rates and sustain growth.
Related Terms: U.S. Dollar (USD), Euro (EUR), Foreign Exchange Reserves, Central Banks, Deflation, Quantitative Easing, Safe Haven, Carry Trade.
References
- Bank of Japan. “Bank of Japan Notes and Coins Currently Issued”.
- International Monetary Fund. “Currency Composition of Official Foreign Exchange Reserves (COFER)”.
- Reuters. “Yen Drops to Fresh 24-Year Low vs. U.S. Dollar”.
- Bank of Japan. “Statement on Monetary Policy”.
- Bank for International Settlements. “Triennial Central Bank Survey - Foreign Exchange Turnover in April 2019”, Page 10.
- International Monetary Fund. “Japan 2022 Article Iv Consultation—Press Release; Staff Report; And Statement by the Executive Director for Japan”.
- Bank of Japan. “A New Series of Banknotes and a New 500 Yen Coin”.
- Bank of Japan. “The History of Japanese Currency”.
- Reuters. “Timeline: Milestones in the Yen’s History”.
- National Bureau of Economic Research. “The Plaza Accord, 30 Years Later”.
- Federal Reserve Bank of St. Louis. “Japanese Yen to U.S. Dollar Spot Exchange Rate (DEXJPUS)”.
- Bloomberg. “Yen Slides to Two-Decade Low, Reigniting Focus on Intervention”.
- Bank of America. “Foreign Currency Exchange”.
- Japan National Tourism Organization. “Currency”.
