Early history (1868–1876) from 1870 (year 3) from 1870 (year 3) Although the
Edo Shogunate collapsed with the
Meiji Restoration and a new government was born, there was no immediate change to the monetary system. During this unstable period, the confusion caused by this form of exchange caused economic turmoil. The gold (counting money) system of eastern Japan and the silver (weighing money) system of the western Japan were not unified, and the difference in the gold-silver ratio caused a large amount of gold to flow overseas at the end of the Tokugawa shogunate.
Emperor Meiji responded to this by appointing
Ōkuma Shigenobu as head of Japan's monetary reform program. He worked with
Inoue Kaoru,
Itō Hirobumi, and
Shibusawa Eiichi to run the Ministry of Finance, seeking to introduce a modern monetary system into Japan. Ōkuma eventually proposed that coins, which were previously square, be made into circular discs, and that the names of the traditional currencies,
ryō (両), bu (分) and shu (朱), be unified into yen (円), which was accepted by the government. Other rejected proposals included physical
weight units of "Fun" and "Momme" which never made it past the
pattern stage. The first gold yen coins consisted of 2, 5, and 20 yen coins which were struck throughout 1870. Five yen coins were first struck in gold for the Japanese government in 1870 at the
San Francisco Mint. During this time a new mint was being established at
Osaka, but this did not receive the gold bullion needed for coinage until the following year. Gold bullion was delivered from private Japanese citizens, foreigners, and the Japanese government. Initially the government opted for silver, which would become the standard unit of value, leaving gold coinage as a subsidiary. While gold coinage could not be produced domestically in 1870, the mint at Osaka could produce silver coins, and these included denominations of 5, 10, 20, and 50 sen. None of these coins dated "1870" circulated until the
Meiji government officially adopted the "yen" as Japan's modern unit of currency on 27 June 1871. This Act formally stipulated the adoption of the decimal accounting system of
yen (1, ), '
(, ), and ' (, ). The new currency was gradually introduced beginning from July of that year. Japanese yen-denominated paper currency was also conceived with the coins in 1870, as
Meiji Tsuho notes by Italian engraver
Edoardo Chiossone. These were released as
fiat currency in denominations of 1, 2, 5, 10, 50, and 100 yen along with subsidiary notes of 10, 20, and 50 sen in 1872. Almost concurrently, the government established a series of national banks modeled after the system in the
United States, which issued national bank notes.
Satsuma Rebellion and aftermath (1877–1887) Massive inflation from the
Satsuma Rebellion in 1877 caused a glut of non-redeemable fiat currency notes. The issuance of national fiat banknotes was ultimately suspended in 1880 by then prime minister
Matsukata Masayoshi. New policies were put into place which included the establishment of a
centralized banking system. By May 1883, another act provided the redemption and retirement of national bank notes. The National Bank Act was amended again in March 1896, providing for the dissolution of the national banks on the expiration of their charters. In that year, Japan adopted a
gold exchange standard, defining the yen as 0.75g fine gold or . This exchange rate remained in place until Japan left the gold standard in December 1931, after which the yen fell to US$0.30 by July 1932 and to US$0.20 by 1933. It remained steady at around US$0.30 until the start of the Pacific War on 7 December 1941, at which time it fell to . The sen and the rin were eventually taken out of circulation at the end of 1953.
Fixed rate of the yen to the U.S. dollar No true exchange rate existed for the yen between 7 December 1941 and 25 April 1949; wartime inflation reduced the yen to a fraction of its prewar value. After a period of instability, on 25 April 1949, the U.S. occupation government
fixed the value of the yen at ¥360/US$ through a 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, ending a key element of the Bretton Woods system, and setting in motion changes that eventually led to
floating exchange rates in 1973.
Yen and major currencies float 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-large
surplus of in 1971. The belief that the yen, and several other major currencies, were undervalued motivated the United States' actions in 1971. Following the United States' measures to devalue the USD 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/US$. 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.
Yen adoption in Okinawa After World War II the
U.S.-administered Okinawa issued a higher-valued currency called the
B yen from 1946 to 1958, which was then replaced by the USD at the rate of US$1 = ¥120 B. Upon the
reversion of Okinawa to Japan in 1972 the Japanese yen then replaced the USD. In light of the USD's reduction in value from ¥360 to ¥308 just before the reversion, an unannounced "currency confirmation" took place on 9 October 1971, wherein residents disclosed their USD holdings in cash and bank accounts; US$60 million were entitled to conversion in 1972 at the higher rate of ¥360.
Japanese government intervention in the currency market In the 1970s, the Japanese government and business people were concerned that a rise in the value of the yen would hurt export growth by making Japanese products less competitive and would damage the industrial base. The government, therefore, continued to intervene heavily in foreign-exchange markets (buying or selling USDs), even after the 1973 decision to allow the yen to float. Despite intervention, market pressures caused the yen to continue climbing in value, peaking temporarily at an average of ¥271/US$ in 1973, before the impact of the
1973 oil crisis was felt (this was retroactively called
endaka, although the term was only coined in 1985). The increased costs of imported
oil caused the yen to depreciate to a range of ¥290/US$ to ¥300/US$ 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/US$ by 1980.
Post-bubble years The yen declined during the
Japanese asset price bubble and continued to do so afterwards, reaching a low of ¥134 to USD in February 2002. The Bank of Japan's policy of zero interest rates has discouraged yen investments, with the
carry trade of investors borrowing yen and investing in better-paying currencies (thus further pushing down the yen) estimated to be as large as US$1 trillion. In February 2007,
The Economist estimated that the yen was 15% undervalued against the USD, and as much as 40% undervalued against the euro.
After the global economic crisis of 2008 However, this trend of depreciation reversed after the
global economic crisis of 2008. Other major currencies, except the
Swiss franc, have been declining relative to the yen. On 4 April 2013, the Bank of Japan announced that they would expand their asset purchase program by US$1.4 trillion in two years. The Bank of Japan hopes to bring Japan from deflation to inflation, aiming for 2% inflation. The amount of purchases is so large that it is expected to double the money supply, but this move has sparked concerns that the authorities in Japan are deliberately devaluing the yen to boost exports. However, the commercial sector in Japan worried that the devaluation would trigger an increase in import prices, especially for energy and raw materials.
A period of rapid global inflation from 2022 onwards Since 2022, the yen has depreciated significantly against its peers, due to a variety of factors. Firstly, Japan's prolonged low-interest-rate policy (to tackle domestic
deflation) has created a
yield differential with other countriesnotably the USthat have high interest rates (to tackle domestic
inflation), prompting investors to seek higher returns in foreign currencies. This interest rate differential directly affects the price of the yen and serves as one of the drivers behind its depreciation. Widely held expectations of yen depreciation can become self-fulfilling prophecies, affecting the currency's exchange rate.
Redenomination proposals Numerous proposals have been made since the 1990s to
redenominate the yen by introducing a new unit or new yen, equal to 100 yen, and nearly worth one USD. This has not happened to date, since the yen remains trusted globally despite its low unit value, and due to the large costs of reissuing new currency and updating currency-reading hardware. The negative impact of postponing upgrades to various computer software until redenomination occurs, in particular, was also cited. ==Coins==