The yen is the official currency of Japan and is denoted by JPY. It is the third most-traded currency in the
foreign exchange market after the Euro and the US dollar. The Japanese currency is widely used as a reserve currency after the
US dollar, the Euro and the pound sterling.
Japan depends on the Ministry of Finance for its exchange rate policies. However, it is the Bank of Japan Policy Board that
publishes the exchange rate statements. The interest rates set by the Bank of Japan has greatly influenced the exchange rate
of the yen. A rise in the interest rate results in higher returns from yen assets. This further pushes up the currency. This has
a negative impact on the export side, although the import bills decline.
Unique Characteristics of the Yen
Some of the unique characteristics of the yen are:
Japan is very vulnerable to rising crude oil prices, as it imports all its oil and, being an export-dependent nation,
is highly sensitive to rising energy costs.
Japan's foreign trade industry maintains an isolationist view. Japan lags behind the rest of the world in regards to
foreign trade, resulting in a number of structural problems as well as low productivity for domestic companies. The lack of
circulation of the yen outside Japan makes the JPY weak.
The manufacturing industry is a major component of the Japanese economy and is directly affected by the value of the yen.
A high value of the yen causes companies to invest in lower-cost nations, since trading with Japan would cost more.
History of the Japanese Yen Exchange Rate
The yen was pegged at 1 USD = ¥360 in April 1949. It remained at this value for a period of 22 years until 1971.
Significant economic growth was witnessed during this period. However, with the collapse of the Bretton Woods System,
the floating exchange rate method was adopted.
The Japanese yen has been appreciating since December 1971. During the 1971-1985 phase, the yen appreciated without any
fluctuation in trend. After the Plaza Accord in 1985, the Japanese currency spiked. Against this backdrop, Japanese industries
invested abroad to capture offshore markets. This, in turn, depressed domestic industrial growth and employment.
Domestic investments dipped and all these led to deflation in the Japanese economy. At this juncture, the Japanese government
intervened in the forex market to curb the yen appreciation in order to boost the export sector.
In early 2009, the yen benefited from the economic crisis. This was mainly due to the high repatriation of Japan’s extensive
foreign investments.
Japanese Yen Exchange Rate
The following table gives a picture of the Japanese exchange rate against major currencies (as on January 1)
| 1 JPY= |
2007 |
2008 |
2009 |
| USD |
0.00840195 |
0.00895175 |
0.0110144 |
| GBP |
0.00428977 |
0.00451129 |
0.00753432 |
| Euro |
0.00636656 |
0.00613008 |
0.00791323 |
| CHF |
0.0102462 |
0.0101414 |
0.0117557 |