What is JPY/Japanese Yen?

Japanese Yen is of course the accepted currency of Japan denoted by the abbreviation JPY. One should also note that Japan’s Yen consists of amounts of 100 Sen and 1000 Rin (which were later discontinued) and is often identified by the symbol of a Y with two parallel horizontal lines through the middle (¥).

Understanding Japanese Yen

The Japanese Yen was introduced by the Meiji government via the New Currency Act in 1871 to modernize the economic state of the country and alleviate the monetary situation. The Yen replaced the Mon currency of the previous Tokugawa era and is now the third-highest traded currency behind the US Dollar and the Euro.

JPY is also commonly classified as a reserve currency behind The Us dollar, the British pound, and the euro as it is a resilient currency given that Japan has a resilient economic standing. This is because Japan often exports more goods than what they import making the country the world’s largest creditor nation.

The term yen refers to a “circle” or “round object”. One should The Mon was made of copper and the Yen mostly of silver so when the value of silver dropped significantly in 1873, the Yen lost most of its value compared to western currencies like the US dollar which had already adopted the “gold standard”.

In 1897 the Yen was worth little to nothing, only getting to around 50 cents U.S. per Yen. Although, in that same year Japan took inspiration from the west and adopted the “gold standard” and that became the value of the Yen from then on. Then in 1949, the JPY was pegged to the US dollar, meaning that it now had a specific exchange rate compared to the US dollar. Later in 1953, the Sen and the Rin were discontinued and their circulation in Japan halted. Finally, in 1971, when the US dollar deviated from the “gold standard” the Yen decreased even further in value.

This all led to the Yen becoming a “floating currency” in 1973, due to numerous oil crises. The Plaza Accord agreement was put in place in 1985 so that G-5 nations (The Group of Five) could influence exchange rates and depreciate the US dollar relative to the JPY and the German Deutsche mark. This subsequently increased the value of the Yen, basically doubling its value in the span of about 3 years, from 1985 to 1988.

In recent times the central Japanese Bank has aimed to meet its 2% inflation goal while simultaneously equalizing the repercussions that came with the 2020 Covid-19 pandemic. At around the same time in December 2020 Japan’s central bank proclaimed that it would spend 73 Trillion Yen to assist with the recovery of Japan.

JPY Denominations

The Japanese Yen can be broken into 1, 5, 10, 50, 100, and 500 yen coins which are all currently in circulation and have been since 2009. Whereas banknotes or bills in Japan are issued in 1000, 2000, 5000, and 10,000 Yen increments. One should note that higher Yen denominations or amounts are counted by the 10000s whereas in western countries the US it is counted by the 1000s.

As of 2019, it was declared that certain Japanese bills were getting a “makeover”, with these new notes estimated to be in circulation by 2024. For example, the new 10000 Yen note will have Eiichi Shibusawa on the front side of the bill. Shibusawa, who is considered the father of capitalism in Japan was a well-known Japanese industrialist in both the 19th and early 20th centuries.

Japanese Yen’s Safe Haven Status

The Japanese Yen is a safe haven, meaning that the Yen is always expected to retain its value or increase in value during economic crises, downturns, or periods of economic certainty. For example, when the great resection of 2008 occurred the Japanese Yen hit a 13-year high in comparison to the US dollar and rose about 20% in October of the same year. Once again in 2013, the Yen rose 5% compared to the euro and 4% compared to the US dollar due to ambiguity revolving around the Italian elections.

There is a common belief amongst investors that during periods of economic uncertainty Japanese traders are very susceptible to dumping foreign assets and converting their money back into Yen, simultaneously creating demand for the Yen and its valuation. Although, it is the propagation of the JPY that continues to allow the Yen to remain a safe haven.

Traders that are contemplating and looking for new opportunities to widen their portfolio ought to look into holding some foreign cash like the Yen.

Investing in JPY

Yen EFTs:

A common way to invest in JPY is via Yen ETFs, like those of which that track the price of Yen. The way these EFTs work is by investing in Yen-supported assets, debt securities, or by holding a position in interest accounts. By holding these Yen EFTs an investor is simultaneously diversifying his or her portfolio in the event the currency of the investor’s principal country fails and or declines.

Furthermore, investors can invest in the Nikkei Stock Average, which is essentially Japan’s Dow Jones Industrial Average, using ETFs. Companies that are listed on the Nikkei include Toyota, Sony, and other well-known Japanese corporations.

Forex Trading:

For those that want to trade Yen, you can look towards the foreign exchange market, however, it can be quite complicated, and competitive for those who do indeed take an approach towards the Yen. This is because, in foreign exchange markets, the yen is known to be very difficult to trade let alone turnover in a positive direction due to a large amount of public debt Japan has incurred over the years, their aging population, and increasing deficits. This is why investors should be well educated and prepared before entering such an exchange market due to its cutthroat nature and low yields.

Frequently Asked Questions

Where is the Best Place to Buy JPY?

A foolproof way to acquire JPY as an investor is at your local bank assuming that said bank is of large standing like the Bank of America or Wells Fargo. Moreover, Yen can also commonly be purchased at airports, however, the exchange rate from your currency will often be inflated as they are raised for tourists that want to convert their dollar.

What would cause the JPY to Depreciate?

It is theoretically possible that the JPY could depreciate if there is big economic distresses, political instability in Japan or closely related markets, or the declaration of foreign trade tariffs imposed upon Japan.