What Is JPY (Japanese Yen)?

JPY stands for the Japanese yen, the official currency of Japan. Recognized by its symbol, resembling a capital Y with two horizontal lines through the center: ¥.

### Key Takeaways

• The Japanese yen ranks as the third-most traded currency globally, after the U.S. dollar and the euro.
• The yen, a traditionally safe asset during market turmoil, dipped to 24-year lows against the dollar in mid-2022.
• The yen’s decline was spurred by the Bank of Japan’s decision not to follow other central banks in raising interest rates.
• With a history of deflation, the Bank of Japan aims for a 2% inflation target to revitalize the economy.

Understanding JPY (Japanese Yen)

The Japanese yen stands as the third most traded currency in the foreign exchange market, trailing the U.S. dollar (USD) and the euro. In a 2019 survey, yen transactions accounted for 16.8% of foreign currency trading turnover.

However, the yen lags significantly behind the U.S. dollar and the euro regarding official foreign exchange reserves, with dollar reserves exceeding yen reserves by over tenfold as of Q4 2021.

Japan’s current account surplus, primarily from being a net exporter, limits the accumulation of yen by foreign central banks.

JPY Denominations

Various yen denominations are in circulation, including coins valued at 1, 5, 10, 50, 100, and 500 yen, along with banknotes of ¥1,000, ¥2,000, ¥5,000, and ¥10,000. Notably, Japanese sums are counted in multiples of 10,000 yen, differing from the Western practice of counting in 1,000s for currencies like the U.S. dollar or euro.

Upcoming redesigns of specific yen banknotes are scheduled by 2024. Notably, these redesigns will feature prominent figures in Japanese history, including Eiichi Shibusawa, Umeko Tsuda, and Shibasaburo Kitasato, alongside incorporating advanced technologies like 3D holograms.

History of the Japanese Yen

The term “yen” originated from the Japanese word “en,” meaning circle or round object, derived from the Chinese term “yuan” for imported silver coins. The yen was established as Japan’s official currency in 1871, replacing prior coinage and a multitude of paper currency issued by feudal lords.

The Bank of Japan, founded in 1882, became the sole issuer of currency in 1884, releasing the first yen banknotes shortly after. Japan later shifted to the gold standard in 1897, following the U.S. and Canada.

Post-World War II saw the yen’s devaluation, with U.S. authorities regulating exchange rates and eventually floating the yen in 1973. The 1985 Plaza Accord triggered a significant appreciation of the yen against the dollar.

Recent decades featured deflation in Japan, prompting the Bank of Japan to set a 2% inflation target and engage in aggressive quantitative easing.

JPY’s Safe Haven Status

Historically, the Japanese yen has been a sought-after safe haven asset, appreciating during market uncertainties. Japan’s low interest rates and deflationary pressures led to the carry trade phenomenon, where investors sought higher returns abroad. Consequently, the yen tends to strengthen against the U.S. dollar in times of market stress.

Despite its safe-haven status, the yen faced a decline against the U.S. dollar in mid-2022 due to the Bank of Japan’s unchanged policy rates amid the Federal Reserve’s rate hikes, causing concerns about inflation and political ramifications in Japan.

As of August 4, 2022, the exchange rate stood at 133.25 yen per U.S. dollar.

Trading Japanese Yen

Engaging in yen trading requires expertise and a high-risk appetite. While forex trading offers leverage and rewards knowledge of yen market dynamics, yen ETFs provide exposure to yen-backed assets without leverage, albeit with currency risk.

How Do I Convert a Japanese Yen Value Into U.S. Dollars?

To convert a sum in Japanese yen to U.S. dollars, divide the yen amount by the current exchange rate. As of August 4, 2022, the USD/JPY rate was 133.25, making ¥10,000 approximately equal to $75.04.

Where Is the Best Place to Buy Japanese Yen?

Optimal locations to purchase Japanese yen include major branches of national banks like Chase, Bank of America, or Wells Fargo, as well as currency exchange outlets at airports, albeit with potentially wider buy/sell spreads due to the convenience factor.

What Has Been Causing the Decline in the Japanese Yen?

Recent declines in the Japanese yen can be attributed to currency traders betting on the Bank of Japan’s persistent near-zero policy rates despite escalating inflation. By mid-2022, the Bank of Japan held a substantial portion of Japan’s government bonds to maintain low long-term interest rates and spur economic growth.