Japanese currency: all you need to know about yen

Skilling Writers Team
2023-06-28
- Forex
- Trading

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History of Japanese currency

The history of Japanese money is a fascinating topic, dating back to the ancient times of the 8th century. At that time, Japan used Chinese coins as its currency. These coins were round, and so the Japanese word for "round" or "circle" came to be used as a name for currency.

Over time, Japan developed its own coins, known as wadōkaichin, which were minted from copper and had Chinese characters on them. Japan's first paper currency was introduced in the 17th century, known as hansatsu. These notes were initially used only by merchants, but later became more widespread and were issued by the government.

In 1871, Japan officially adopted the yen as its currency. It was initially based on the gold standard, with one yen being equal to 1.5 grams of gold. However, this standard was abandoned during World War II. The post-war period saw significant economic growth, and Japan currency became one of the most traded in the world.

Today, the yen remains a popular currency in the foreign exchange market due to its liquidity and volatility. Despite being undervalued, it is still widely traded by forex investors who seek to profit from its fluctuations. The Bank of Japan, Japan's central bank, is responsible for issuing and regulating this currency.

The history of Japanese money is a rich and varied one, with many fascinating developments over the centuries. From ancient Chinese coins to modern-day forex trading, the yen has played a vital role in Japan's economic growth and remains an essential currency in the global financial markets.

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Why is the yen so undervalued?

The value of the yen is a complex issue that has been the subject of much debate and speculation. There are several factors that contribute to the undervaluation of the yen.

One significant factor is Japan's economic policy, which has been geared towards promoting exports and keeping the yen's value low. Country's export-oriented economy has led to a surplus in trade, which in turn has resulted in a high demand for yen. To maintain a low exchange rate, the Bank of Japan has implemented various monetary policies, such as quantitative easing and negative interest rates. These policies increase the supply of yen in the market, thereby reducing its value.
Another reason for the undervaluation of the yen is global market trends. The US dollar, euro, and other major currencies have a higher demand and trading volume than the yen, which makes it less attractive to investors. The strength of the US dollar and the euro can also impact the yen's value. When these currencies appreciate against the yen, it can cause it to weaken.
In recent years, the COVID-19 pandemic has also played a key role. It has caused significant disruptions to global trade, and the resulting economic downturn has led to a decline in demand for the yen. This has caused it to weaken further against other major currencies.

The undervaluation of the yen is a complex issue with various factors at play. Despite this, it remains an essential currency in the global financial markets, and investors continue to seek opportunities to trade it.

Events that affected JPY in history

The Japanese yen has a long and complex history that has been influenced by various political, economic, and social events. As mentioned above, the global financial crisis of 2008, the rise of China as an economic power, and the COVID-19 pandemic have had varying impacts, depending on the specific economic conditions and policies in place at the time. Here are some more events which have had a significant impact on the value of the yen, and the Japanese economy.

One of the most significant events was the Plaza Accord of 1985. This was an agreement between the US, Japan, France, West Germany, and the UK to depreciate the US dollar relative to the yen and the German mark. The purpose of this was to reduce the US trade deficit, which had been growing rapidly in the early 1980s. It caused the value of the yen to appreciate rapidly, which had a significant impact on the Japanese economy. This made Japanese exports more expensive, which led to a recession in the Japanese economy in the late 1980s.

Another important event was the Asian financial crisis of 1997. It began in Thailand and quickly spread to other countries in the region, including Japan. The crisis led to a significant decline in the value of the yen and caused a recession in the Japanese economy. The government responded by implementing various economic policies, such as quantitative easing, to stimulate the economy.

In 2011, Japan experienced a massive earthquake and tsunami, which caused widespread damage and loss of life. The disaster also had a significant impact on the Japanese economy and the value of the yen. The government responded by implementing various policies, such as fiscal stimulus and monetary easing, to support the economy and stabilize the value of the yen.

The history of this currency has been shaped by various events that have had significant impacts on its value and the Japanese economy as a whole. Understanding them and their effects is essential for anyone looking to trade the yen or invest in the Japanese economy.

Trading Japanese currency

Japan is one of the world's largest economies, and the yen is widely traded in global foreign exchange markets. Trading it can be a lucrative opportunity for investors, but it can also be risky due to its volatility and the complex economic and political factors that can influence its value.

Trading: One of the primary ways to trade the yen is through the foreign exchange market, or forex. It involves buying or selling currencies in pairs, such as JPY/USD, JPY/EUR, JPY/GBP, JPY/AUD, and JPY/CAD. Traders can use technical analysis, fundamental analysis, or a combination of both to make decisions based on factors such as economic indicators, geopolitical events, and market sentiment.
ETF: Another way to trade it is through exchange-traded funds (ETFs) that focus on Japanese stocks or bonds. These funds can provide exposure to this country's economy and currency while diversifying risk across multiple assets.
Futures contracts or options: Investors can also trade the yen through futures contracts or options. The first ones allow traders to buy or sell a set amount of yen at a predetermined price and date, while the second ones give traders the right but not the obligation to buy or sell yen at a specific price and time.

Regardless of the trading method, it is essential to have a solid understanding of the economy and the factors that can influence the value of the currency. Economic indicators such as gross domestic product (GDP), inflation, and interest rates can all affect the value of the yen, as can geopolitical events such as elections and trade negotiations.

It is also crucial to have a risk management strategy in place when trading the yen or any other currency. This can include setting stop-loss orders to limit losses or using position sizing to control the amount of capital at risk.

Conclusion

In the fascinating world of Japanese currency, remember the importance of keeping a close eye on the many events that can affect the value of the yen. Stay informed of the latest trends and market fluctuations and consider the many trading styles and strategies that can help you make the most of your JPY investments. Remember that with the right knowledge and approach, your newfound expertise on this currency can be a powerful tool when trading the ever-changing landscape of the global currency market.

Past performance does not guarantee or predict future performance. This article is offered for general information purposes only and does not constitute investment advice.