What Is JPY (Japanese Yen)?

What Is JPY (Japanese Yen)?

Let me explain what JPY stands for—it's the abbreviation for the Japanese yen, which is the official currency of Japan. You'll often see it represented by the symbol ¥, that capital Y with two horizontal dashes through the center.

Key Takeaways

Here's what you need to know right away: The Japanese yen ranks as the world's third-most traded currency, right behind the U.S. dollar and the euro. Normally, it's seen as a safe haven during market stress, but it dropped to 24-year lows against the dollar in mid-2022. That decline came from the Bank of Japan (BoJ) refusing to raise interest rates like other central banks did. Plus, the BoJ has a 2% inflation target in place after decades of deflation that hurt Japan's economy.

Understanding JPY (Japanese Yen)

When you look at the foreign exchange market, the Japanese yen is the third-most traded currency after the U.S. dollar (USD) and the euro. In a 2019 survey, yen trades made up 16.8% of foreign currency trading turnover, compared to over 88.3% for the dollar and 32.3% for the euro.

The yen also sits in third place, far behind the dollar and euro, as a denomination for official foreign exchange reserves. As of Q4 2021, reserves in dollars were more than 10 times those in yen. Japan's current account surplus, from being a major net exporter, limits how much yen foreign central banks accumulate.

JPY Denominations

You have coins in circulation for 1, 5, 10, 50, 100, and 500 yen, along with banknotes of ¥1,000, ¥2,000, ¥5,000, and ¥10,000. In Japan, people count large sums in multiples of 10,000 yen, unlike the West where we use thousands for dollars or euros.

Some yen banknotes are getting a redesign by 2024. The new 10,000 yen note will feature Eiichi Shibusawa, known as the 'father of Japanese capitalism' for his industrial work in the 19th and early 20th centuries. The 5,000 yen note will show Umeko Tsuda, who founded Tsuda University and advanced women's education. The 1,000 yen note will honor Shibasaburo Kitasato, a medical scientist. These new bills will include 3D holograms.

History of the Japanese Yen

The name 'yen' comes from 'en,' the Japanese word for circle or round object, which itself derives from the Chinese 'yuan' for imported silver coins. In 1871, the Meiji government introduced the yen, replacing the metal coins of the Tokugawa shogunate and the various paper scrip from feudal lords.

The Bank of Japan (BoJ) was established in 1882 as the central bank and got exclusive rights to issue currency in 1884, printing its first yen banknote in 1885. After devaluing steadily against the Canadian and U.S. dollars, Japan adopted the gold standard in 1897, following the U.S. and Canada.

World War II wrecked the yen's value, and post-war U.S. occupation authorities set up regulated exchange rates while depreciating the yen against the dollar during high inflation. The yen was pegged to the dollar in 1949 and allowed to float in 1973 after the Bretton Woods system collapsed.

The 1985 Plaza Accord caused a managed depreciation of the U.S. dollar, which doubled the yen's value against it by 1988, from ¥239 to ¥123 per $1. After years of deflation, the BoJ now targets 2% inflation and runs an aggressive quantitative easing program.

JPY's Safe Haven Status

I've always noted that the Japanese yen is viewed as a safe haven. It tends to appreciate during times of risk aversion in financial markets. With low domestic interest rates amid deflation, Japanese institutions and households chase higher yields abroad in what's called the carry trade. When markets get stressed and those flows reverse, the yen strengthens against the U.S. dollar.

But in mid-2022, the JPY hit a 24-year low against the dollar because the BoJ kept its policy rate near zero, while the Federal Reserve hiked rates to combat inflation. Rising prices, worsened by the yen's fall, became a political issue in Japan before national elections.

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

Trading Japanese Yen

Unless you're a skilled currency trader who thrives on risk, I advise steering clear of trading the yen, especially when it's under pressure. That said, professionals and bold amateurs can trade it in the global forex market, where high leverage is available and deep knowledge of yen drivers pays off.

On the other hand, yen ETFs provide no leverage and invest in yen-backed assets like short-term debt and bonds. Holding these does expose you to currency risk that could hurt your investment.

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

To convert, divide the amount in Japanese yen by the current USD/JPY exchange rate. For example, as of August 4, 2022, with a rate of 133.25, ¥10,000 equals about $75.04 (10,000 divided by 133.25).

Where Is the Best Place to Buy Japanese Yen?

You can get Japanese yen at large branches of national banks like Chase, Bank of America, or Wells Fargo. Airports also offer foreign currency exchange, including JPY, but expect wider buy/sell spreads there due to the convenience factor.

What Has Been Causing the Decline in the Japanese Yen?

Traders are betting that the Bank of Japan will keep its policy rate near zero even with rising inflation. By June 2022, the BoJ had bought over half of Japan's government bonds to keep long-term interest rates low and support growth.