The History of the Japanese Yen

If you’ve ever turned to the financial news, you’ve surely seen this symbol: ¥. It refers to Yen, the national currency of Japan, something valued very highly by international traders.

The Japanese Yen is one of the most important currencies in the world, but do you know how it got to that point? Just like the country itself, the history of Japanese money is one of rich tradition and international intrigue. A millennia-long journey took the Japanese people from bartering with rice to commanding a major place in the global economy. The political, diplomatic and financial decisions along the way make an engaging story for anyone interested in economics, history or foreign affairs.

Let’s start with the very beginnings and work our way to the present day.

Page Contents

Precursors to the Yen

The invention of money

Like most civilizations, Japan developed the concept of money almost immediately. At first, these were goods that everyone wanted. Instead of trading random goods and services, it was much more efficient to have one standard thing to trade for. In early Japan, these were things like arrowheads, rice and, like many other places, gold.

Over the centuries, Japanese money became more sophisticated. Especially once the Japanese began extensive trade and diplomacy with China, they realized the need for uniform metallic currency. Copper, silver and gold were all used at various times.

Chinese reserve currency

By the 12th Century, Chinese influence in East Asia was so extensive that the Japanese began relying on Chinese coins for their own currency, just like many countries do so with the US Dollar today. As well as official coins imported from the Chinese Yuan dynasty, Japan obtained a lot of currency through piracy, counterfeit production and importation from other Asian countries like Korea.

Tokugawa coinage

During the Edo period, Japan was divided into various feudal fiefs. All these fiefs issued their own currency, and none of them were really compatible with each other. They were called hansatsu.

The hansatsu were paper bills that went along with coins issued by the Tokugawa shogunate, the Edo Bakufu. The shogunate minted coins in gold, silver and bronze, but the fiefs’ hansatsu were usually exchangeable for silver.

A uniform currency

During the Meiji restoration, after Japan reopened itself to foreign trade and influence, the Japanese government decided they needed a uniform currency.

During the 19th Century, Spanish money had become an important medium for international trade, especially in East Asia. The West and East accessed each other through the Philippines which brought goods from Latin American countries and Spanish colonies and distributed them to Asian traders.

These coins were originally Silver dollars, but as Latin American countries began gaining their independence, the coins were more often unique currencies from the independent republics. When this happened, China stopped depending on the currency, and Asian countries stopped minting their own Spanish dollars. Japan decided to buy the machines and use them to make their own currency.

The Japanese called their new coins yen. The word comes from the Japanese en, which means round, and is borrowed from a transliteration of Chinese yuan, referring to the roundness of the old Spanish dollars.

At first, Yen were tied to silver, but in 1873, just two years after the adoption of a national Japanese currency, the world experienced a massive devaluation of silver. This led to a serious depreciation in the Yen’s value, especially compared to currencies like the US Dollar, which was on a gold standard. Therefore, the Japanese tied the Yen to gold instead and froze the exchange rate to ¥1/$0.50.

Fiat currency

Japan left the gold standard in 1931 and entered the modern world of fiat currency, a currency backed by a government rather than tied to any physical good like gold or silver. It was around that time that Japan began rapidly expanding its empire. The value of the Yen stayed constant during this period, but once the Pacific theater began in World War II, the value dropped considerably.

As Japan fell deeper into war, and especially after it began losing territory, inflation occurred. By the end of the war, ¥1 was worth very little compared to before the war, and prices were fluctuating wildly. The United States, which now occupied the country, decided to stabilize the economy and fix the value of the Yen at ¥360/$1.

However, by the 1970s, this had led to an undervaluing of the Yen. Japanese goods were really cheap on the international market and outcompeting countries like the US. The US dropped the gold standard, so the Yen and Dollar began to fluctuate against each other. This brought about the modern era of floating currencies.

Bubble

Again in the early 80s, the Yen became severely devalued. There was a lot of deregulation of the international finance market, and the situation led to investors dumping Yen for other currencies. This flooded the currency market with Yen and once again made Japanese goods very cheap to import.

By 1985, US exporters had complained enough to prompt action from the government. The major economies of the world, including Japan, came to an agreement to manipulate their currencies and devalue the US dollar so that US companies could again compete on the international market.

As a result, the value of the Yen increased dramatically. From 1985-1988, its worth nearly doubled. It peaked in 1995 at ¥80/$1, which made Japan’s economy almost as large as the United States’. This was just a bubble, though, and the Japanese economy essentially stalled out, a state of stagnation that it’s still experiencing today.

Since the 2008 economic crisis, the Yen has started to appreciate again in value. Still, the country is still dealing with repercussions of the economic stagnation of the 90s that’s often referred to as “the lost decade.”

The Yen today

Reserve currency

Currently, the Yen is one of the world’s major reserve currencies. In fact, it’s the third most traded currency after the US Dollar and the Euro and makes up about 17% of daily trades.

Many individuals, companies and foreign governments want to have a stockpile of Yen because the Japanese economy and government is stable, and the country produces a lot of important goods and services.

Current value

In absolute terms, the Yen is a small unit of currency, but unlike currencies such as the US Dollar and Euro which has fractional denominations like cents, there is no smaller division of Yen. To get an idea of its value, take a look at these exchange rates:

   
Foreign Currency Value in Yen
$1 (US Dollar) ¥106
€1 (Euro) ¥116
£1 (British Pound Sterling) ¥132
1 RNB (Chinese Yuan) ¥15
1 CHf (Swiss Franc) ¥109
1 Mex (Mexican Peso) ¥4
1 RUB (Russian Ruble) ¥1

As you can see, one Yen is about equal to one US cent. Prices in the country reflect this. A bowl of ramen at a casual restaurant might be about ¥1,000, but don’t be scared by these big numbers. That’s roughly $10.

Coinage

Japan uses a lot more coins than Westerners, especially Americans, are used to. There are coins for ¥1, ¥5, ¥10, ¥50, ¥100 and ¥500. The bills start at ¥1,000 and continue through denominations of ¥2,000, ¥5,000 and ¥10,000. This is basically like having $1 and $5 coins instead of bills, so you’ll use them a lot.

Last word of advice

Japan is a cash-based society. When it comes to Yen, nothing is more versatile than cold, hard cash. If you’re traveling to Japan, keep plenty of Yen on you in case you can’t use credit cards or apps. You can always keep a few leftover coins as souvenirs.


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