Introduction of The Yen

The Japanese yen (sign: ; code: JPY) is the official currency of Japan.
It is the third most traded currency in the foreign exchange market after the United States dollar and the euro.[1] It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling. As is common when counting in East Asia, large quantities of yen are often counted in multiples of 10,000 in the same way as values in Western countries are often quoted in thousands.
Introduction of the yen

In the 19th century silver Spanish dollar coins were common throughout South east Asia, the China coast, and Japan. These coins had been introduced through Manila over a period of two hundred and fifty years, arriving on ships from Acapulco in Mexico. These ships were known as the Manila galleons. Until the 19th century these silver dollar coins were actual Spanish dollars minted in the new world, mostly at Mexico City. But from the 1840s they were increasingly replaced by silver dollars of the new Latin American republics. In the latter half of the 19th century some local coins in the region were made in the likeness of the Mexican peso. The first of these local silver coins was the Hong Kong silver dollar coin that was minted in Hong Kong between the years 1866 and 1868. The Chinese were slow to accept unfamiliar coinage and preferred the familiar Mexican dollars, and so the Hong Kong government ceased minting these coins and sold the mint machinery to Japan. The Japanese then decided to adopt a silver dollar coinage under the name of 'yen', meaning 'a round object'. The yen was officially adopted by the Meiji government in an Act signed on May 10, 1871. [10] The new currency was gradually introduced beginning from July of that year. The yen was therefore basically a dollar unit, like all dollars, descended from the Spanish Pieces of eight, and up until the year 1873, all the dollars in the world had more or less the same value. The yen replaced Tokugawa coinage, a complex monetary system of the Edo period based on the mon. The New Currency Actof 1871 stipulated the adoption of the decimal accounting system of yen (1, ), sen (100, ), and rin (1000, ), with the coins being round and manufactured using Western machinery. The yen was legally defined as 0.78 troy ounces(24.26 g) of pure silver, or 1.5 grams of pure gold (as recommended by the European Congress of Economists in Paris in 1867; the 5-yen coin was equivalent to the Argentine 5 peso fuerte coin[11]), hence putting it on a bimetallic standard. (The same amount of silver is worth about 1181 modern yen,[12] while the same amount of gold is worth about 4715 yen.[13])
Fixed value of the yen to the US dollar

The yen lost most of its value during and after World War II. After a period of instability, in 1949, the value of the yen wasfixed at 360 per US$1 through a United States plan, which was part of the Bretton Woods System, to stabilize prices in the Japanese economy. That exchange rate was maintained until 1971, when the United States abandoned the gold standard, which had been a key element of the Bretton Woods System, and imposed a 10 percent surcharge on imports, setting in motion changes that eventually led to floating exchange rates in 1973. As of 2011, the yen has become much stronger and the USD to JPY ratio is about 75 to the dollar.
Undervalued yen
By 1971 the yen had become undervalued. Japanese exports were costing too little in international markets, and imports from abroad were costing the Japanese too much. This undervaluation was reflected in the current account balance, which had risen from the deficits of the early 1960s to a then-
largesurplus of US$5.8 billion in 1971. The belief that the yen, and several other major currencies, were undervalued motivated the United States' actions in 1971.
Yen and major currencies float

Following the United States' measures to devalue the dollar in the summer of 1971, the Japanese government agreed to a new, fixed exchange rate as part of the Smithsonian Agreement, signed at the end of the year. This agreement set the exchange rate at 308 per US$1. However, the new fixed rates of the Smithsonian Agreement were difficult to maintain in the face of supply and demand pressures in the foreign-exchange market. In early 1973, the rates were abandoned, and the major nations of the world allowed their currencies to float.
Japanese government intervention in the currency market

In the 1970s, Japanese government and business people were very concerned that a rise in the value of the yen would hurt export growth by making Japanese products less competitive and would damage the industrial base. The government therefore continued to intervene heavily in foreign-exchange marketing (buying or selling dollars), even after the 1973 decision to allow the yen to float. Despite intervention, market pressures caused the yen to continue climbing in value, peaking temporarily at an average of 271 per US$1 in 1973 before the impact of the 1973 oil crisis was felt. The increased costs of imported oil caused the yen to depreciate to a range of 290 to 300 between 1974 and 1976. The re-emergence of trade surpluses drove the yen back up to 211 in 1978. This currency strengthening was again reversed by the second oil shock in 1979, with the yen dropping to 227 by 1980.
Yen in the early 1980s

During the first half of the 1980s, the yen failed to rise in value even though current account surpluses returned and grew quickly. From 221 in 1981, the average value of the yen actually dropped to 239 in 1985. The rise in the current account surplus generated stronger demand for yen in foreign-exchange markets, but this trade-related demand for yen was offset by other factors. A wide differential in interest rates, with United States interest rates much higher than those in Japan, and the continuing moves to deregulate the international flow of capital, led to a large net outflow of capital from Japan. This capital flow increased the supply of yen in foreign-exchange markets, as Japanese investors changed their yen for other currencies (mainly dollars) to invest overseas. This kept the yen weak relative to the dollar and fostered the rapid rise in the Japanese trade surplus that took place in the 1980s.
Effect of the Plaza Accord

In 1985 a dramatic change began. Finance officials from major nations signed an agreement (the Plaza Accord) affirming that the dollar was overvalued (and, therefore, the yen undervalued). This agreement, and shifting supply and demand pressures in the markets, led to a rapid rise in the value of the yen. From its average of 239 per US$1 in 1985, the yen rose to a peak of 128 in 1988, virtually doubling its value relative to the dollar. After declining somewhat in 1989 and 1990, it reached a new high of 123 to US$1 in December 1992. In April 1995, the yen hit a peak of under 80 yen per dollar, temporarily making Japan's economy nearly the size of the US.
Banknotes
A Series D 2000 yen note, featuringShureimon
Main article: Banknotes of the Japanese yen The issuance of the yen banknotes began in 1872, two years after the currency was introduced. Throughout its history, the denominations have ranged from 10 yen to 10000 yen. Before and during World War II, various bodies issued banknotes in yen, such as the Ministry of Finance and the Imperial Japanese National Bank. The Allied forces also issued some notes shortly after the war. Since then, the Bank of Japan has been the exclusive note issuing authority. The bank has issued five series after World War II. Series E, the current series, consists of 1000, 2000, 5000, and 10,000. The 2000 bills are rare these days, and often not accepted as a means of payment, not even in dispensing machines.
Determinants of value
Beginning in December 1931, Japan gradually shifted from the gold standard system to the managed currency system.[26] The relative value of the yen is determined in foreign exchange markets by the economic forces of supply and demand. The supplyof the yen in the market is governed by the desire of yen holders to exchange their yen for other currencies to purchase goods,services, or assets. The demand for the yen is governed by the desire of foreigners to buy goods and services in Japan and by their interest in investing in Japan (buying yen-denominated real and financial assets). Since the 1990s, the Bank of Japan, the country's central bank, has kept interest rates low in order to spur economic growth. Short-term lending rates have responded to this monetary relaxation and fell from 3.7% to 1.3% between 1993 and 2008.[27] Low interest rates combined with a ready liquidity for the yen prompted investors to borrow money in Japan and invest it in other countries (a practice known as carry trade). This has helped to keep the value of the yen low compared to other currencies.
MONETAR Y SYSTEM OF JAPAN

Marquez, Julie Ann A. IV- Calderon Mr. Cervantes

Introduction of The Yen

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The Japanese yen (sign: ; code: JPY) is the official currency of Japan.

Introduction of the yen

Fixed value of the yen to the US dollar

Yen and major currencies float

Japanese government intervention in the currency market

Yen in the early 1980s

Effect of the Plaza Accord

A Series D 2000 yen note, featuringShureimon

MONETAR Y SYSTEM OF JAPAN

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