JPY (Japanese Yen)

What Is JPY (Japanese Yen)?

JPY is the currency abbreviation or the currency symbol for the Japanese yen (JPY), the currency for Japan. It is made up of 100 sen or 1000 rin and is often presented with a symbol that looks like the capital letter Y with two horizontal dashes through the center: ¥.

Key Takeaways

  • JPY is the currency abbreviation or the currency symbol for the Japanese yen (JPY), the currency for Japan.
  • The yen was originally introduced by the Meiji government in 1871 as a measure to modernize the country economically.
  • The Japanese yen is the world's third-most traded currency and considered a reserve currency after the U.S. dollar.
  • In more recent years, the central Japanese bank has been aiming to achieve its 2% inflation target while balancing the economic impacts of the 2020 crisis.
  • Investors who are interested in the Japanese yen can purchase yen ETFs or invest in the Nikkei 225 Stock Average.

Understanding JPY (Japanese Yen)

The Japanese yen, originally introduced by the Meiji government as a measure to modernize the country economically, is the third-most traded currency in the foreign exchange market after the U.S. dollar (USD) and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro, and the British pound (GBP). Historically, the yen has been a strong currency due to Japan's strong economy as well; the country's account surplus exporting more goods than it imports had made the country the world's largest creditor nation.

The word “yen” means “circle” or “round object.” The yen was officially adopted by the Meiji government with the “New Currency Act” of 1871 with the intention of stabilizing the monetary situation. It replaced the mon currency of the Tokugawa era.

The mon was made mostly of copper. In 1873, silver was devalued, and the yen lost most of its value compared to Canadian and U.S. dollars, both of which had adopted the gold standard. By 1897, the yen was barely worth 50 U.S. cents. That year, Japan also adopted the gold standard, and it became the value of the yen. The sen and the rin were taken out of circulation in 1953.

The yen was pegged to the U.S. dollar in 1949. When the U.S. went off the gold standard in 1971, the yen was devalued again and has been a floating currency since 1973, when the various oil crises began, rising and falling against the dollar.

In 1985, the Plaza Accord agreement was designed amongst the G-5 nations to manipulate exchange rates and depreciate the U.S. dollar in relation to the Japanese yen (as well as the German Deutsche mark). This dramatically increased the value of the yen, essentially doubling the value of the Japanese yen in a span of three years from ¥239 to ¥123 per US$1, between 1985 to 1988.

In more recent years, the central Japanese bank has been aiming to achieve its 2% inflation target while balancing the economic impacts of the 2020 crisis. In December 2020, it announced it would be spending ¥73.6 trillion to help with the country's recovery.

JPY Denominations

The 1, 5, 10, 50, 100 and 500 yen coins are in circulation, which has been the case since 2009. The weight of the 1 yen coin is 1 gram. Banknotes are issued in ¥1,000, ¥2,000, ¥5,000, and ¥10,000 increments. Interestingly, higher yen denominations are counted in multiples of 10.000 while most Western countries count higher denominations by thousands.

In 2019, it was announced that a few Japanese yen banknotes were getting redesigned, with the new notes expected to begin circulation around 2024. The new 10,000 yen note will feature Eiichi Shibusawa, a famous Japanese industrialist in the 19th and early 20th century who is considered the "father of Japanese capitalism."

The ¥5,000 bill will feature Umeko Tsuda who founded Tsuda University in Tokyo, who pioneered Japanese women's education, and the 1,000 yen note will feature Shibasaburo Kitasato, a scientist who helped push modern medical science forward. The new bills will also feature 3D holograms. The 2,000 yen notes will not get redesigned since there are only a few in circulation.

JPY's Safe Haven Status

The Japanese yen is considered a safe haven. The currency often appreciates in value during times of economic certainty. When the Great Recession occurred in 2008, the Japanese yen hit a 13-year high of $90.87 against the U.S. dollar and surged nearly 20% that October. In 2013, in just one day, the yen rose 5% against the euro and 4% against the dollar because of uncertainty surrounding the Italian elections.

In addition, there's a belief among traders that in times of uncertainty, Japanese investors are prone to dump foreign holdings and bring their money back in yen, strengthening demand for the currency as well as its valuation.

The proliferation and popularity of the Japanese yen will continue to keep it a safe haven, a rare currency that appreciates during times of uncertainty. Investors looking to take advantage and diversify their portfolio should look into holding some foreign ETFs and even cash in yen.

110.72 Japanese yen

The current exchange rate per US$1, as of September 24, 2021.

Investing in Japanese Yen

  • Yen ETFs — Investors can invest in yen ETFs that track the relative price of the currency. These ETFs primarily function by investing in yen-backed assets, short-term debt instruments, bonds, and even just holding the spot currency in interest-bearing accounts. Holding yen ETFs can be a good way of diversifying a portfolio in case the currency of an investor's primary country declines in value. More ambitious investors who want to invest in the Nikkei 225 Stock Average—the Japanese equivalent of the U.S. Dow Jones Industrial Average—can also do so through an ETF. Some well-known Japanese companies on the Nikkei include Toyota Motor Corp., Mazda Motor Corp., and Sony Corp., among others. ETFs include Blackrock Japan’s iShares Nikkei 225 ETF, Nomura Asset Management’s Nikkei 225 Exchange Traded Fund (NTETF), and Daiwa Asset Management’s Daiwa ETF Nikkei 225.
  • Forex Trading — The foreign exchange market is also a fast-paced, complicated, and competitive landscape for those that want to trade the yen. Within this space, the yen is notoriously difficult to trade as Japan has a large public debt, aging population, and in the last decade have increasingly run larger deficits. There's a lot of information forex traders need to know about the yen before diving in headfirst.

Frequently Asked Questions

How to Convert Yen to Dollars?

Divide the number of Japanese yen you have by the current exchange rate for the U.S. dollar. As of September 24, 2021, the USD/JPY exchange rate was 110.72. This means that 1 Japanese yen was 0.0090 dollars. For example, US$100 would equal ¥11,072.

Where Is the Best Place to Buy Japanese Yen?

Some of the best places to buy Japanese yen are at your bank (given it is a large, national bank such as Chase, Bank of America, or Wells Fargo). You can also buy yen at airports, although the exchange rate will not typically work in your favor, as they are up-charged for visitors and tourists that are desperate to convert their dollars.

What would cause the Japanese Yen to Depreciate?

The Japanese yen could depreciate based on larger economic concerns, political instability, or the announcement of foreign trade tariffs or other factors.

Article Sources

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  1. The Japan Times. "Bank of Japan unveils plan to probe better ways to hit price goal and extends fund program." Accessed May 9, 2021.

  2. The Japan Times. "Japan announces new ¥10,000, ¥5,000 and ¥1,000 bank notes as Reiwa Era looms." Accessed May 9, 2021.

  3. MoneyWeek. "Currency Corner: the outlook for the Japanese yen." Accessed May 9, 2021.