Japanese Yen (JPY) - Currency of Japan

Some facts that you ought to know about the japanese yen:

1. The short name for Japan currency is JPY.
2. ¥ is the symbol of the Yen.
3. The most used Yen coins are 1 HOU, 2 HOU, 5 HOU, HK$1, HK$2, HK$5, HK$10.
4. The most frequently used banknotes are ¥1000, ¥5000, ¥10000.
5. The Bank of Japan is the chief bank of this region.

History of Japanese Yen

The Japanese yen, abbreviated as JPY, is Japan’s national currency and uses the official symbol ¥. After the US dollar and Euro, it is the world’s most traded and valued currency and is frequently used as a reserve currency. The word ‘yen’ means a round object. Coins of 1 yen, 5 yen, 10 yen, 50 yen, 100 yen, and 500 yen, that were launched in 1871 are still in use. The latest series of banknotes were issued in the year 2004 and consist of ¥1,000, ¥2,000, ¥5,000, and ¥10,000.

The origin of the yen can be dated back to the later part of the nineteenth century, as a part of the modernisation policy of the country's economy which was formed by the Meiji government. The Meiji asserted the adoption of a common currency globally and suspended the exchange of clan notes and paper money that were being used since the sixteenth century.

It was in 1882, that the Bank of Japan was founded to monopolise the supply of money. In the year 1897, Japan adopted the gold standard. The circulation of the sen and the rin also came to an end in 1953. It is the Bank of Japan that has the sole rights to issue coins as well as banknotes. The observation of every note has a picture of one of Japan’s very important cultural figures, for example, bacteriologist Hideyo Noguchi, author Murasaki Shikibu, educator Fukuzawa Yukichi, etc.

The Japanese government always concentrated on competitive exports aiming to keep a low rate of exchange for JPY through excess trade. However, in 1985, the Plaza Accord altered the situation for some time by increasing the exchange rate. From an average of 239 yen per US dollar to 128 yen in a span of 3 years. In the year 1995, the size of Japan’s GDP was almost similar to the United States, with a high rate of 80 yen to one US dollar.

BOJ, Bank of Japan, retains an almost zero interest rate regime as the government has historically maintained an uncompromising anti-inflation policy. In the year 2018, JPY was declared to be one of the top currencies globally, and it was speculated that it would soon surpass the US dollar.

Factors affecting the Japanese Yen

The Japanese economy is established on the production and export of electronic goods and automobiles. Over the years, there has been an increasing focus on hi-tech precision goods and robotics. In terms of GDP, Japan is the 3rd largest economy in the world, making the yen highly popular.

Similar to most currencies, there are a set of factors that affect the price of the Japanese yen. Interest rate parity, purchasing power parity, the balance of payments, and the Fisher effect are some important theories that affect foreign exchange rates. Let us take a look at some of the other important factors affecting the Japanese Yen:

1. The Tankan Survey:

An economic report, the Tankan Survey is published by the Central Bank of Japan. The report covers numerous companies that either have a defined minimum capital amount or are highly influential. These companies are questioned about the ongoing trends of their businesses. The survey also asked them to submit their proposed business for the upcoming quarter/ year. The Tankan Survey is considered to be a key indicator that is released before the GDP data.

2. Japan’s economic status:

In the past thirty years, Japan’s economy has not experienced a lot of growth. Just like many other countries, it owes a considerable debt. With a high level of debt, traders feel more comfortable with Japan’s debt balance. Experts believe the weak yen captures the financial situation of the country. It should also be noted that Japan has one of the lowest birth rates the world over, along with a significant percentage of adults/ older adults.

3. Bank of Japan:

Ever since the country’s property bubble collapsed, BOJ has maintained low rates. Through currency intervention, the bank has been selling the yen in order to make exports all the more competitive. The country’s trade balance also affects the bank’s policies and forex rates.

4. Carry Trades:

A trading technique, Carry Trade includes borrowing in a low-interest currency to invest in a high-interest currency, to achieve a more increased rate of return. As the interest rates of the BOJ are low, the yen becomes a lucrative currency to buy currencies from other nations which pay a comparatively higher rate of interest. This further boosts investors to liquidate the yen positions in favour of other acquisitions/ assets.