Japanese yen history

The Japanese yen is the third most traded currency in the world after the US dollar and euro. Yen is also very often used as a reserve currency, occupying the forth place in the reserve currency top after US dollar, euro and pound sterling.

In 1871 the yen was officially adopted by the Meiji government, replacing the complex monetary system of the Edo period based on the mon currency. The currency was gradually introduced starting from July on that year in the form of a silver coin similar to that time’s Mexican Peso. By the “New Currency Act” of 1871 the yen was defined as 0.78 troy ounces (24.26 g) of pure silver, or 1.5 grams of pure gold and the decimal accounting system of yen, sen, and rin was adopted. The sen and rin were taken out of circulation in 1953.

After World War Two yen lost most of his value and eventually, after a period of instability, in 1949 the value of the yen was fixed: ¥360 per US$1. This measure was a part of the Bretton Woods System and was expected to stabilize prices in the Japanese economy. The same exchange rate was used until 1971 when the gold standard was abandoned.

In the summer of 1971 the government agreed to a new exchange rate of ¥308 per US$1 as part of the Smithsonian Agreement. This new agreement was difficult to maintain because the currencies were under pressure by the supply and demand in the foreign exchange market. As a result in 1973 the fixed exchange rates were abandoned and currencies of the most important nations in the world were allowed to float.

In 1973, before the oil crisis, yen appreciated to a ¥271 per US$1 rate, but when the crisis started to show, yen depreciated to ¥300 between 1974 and 1976. Based on economic reality yen started to go up again reaching ¥211 to US$1 in 1978, but the second oil shock had an impact causing yen to drop down to ¥227 by 1980.

In 1985 financial officials from France, West Germany, Japan, United States and the United Kingdom, agreed at the Plaza Hotel in New York City to depreciate the US dollar in relation with other currencies. As a result of this agreement, doubled by the pressure in foreign exchange market, the yen exchange rate had a major appreciation reaching a peak of ¥128 in 1988. In just few years yen virtually doubled its value relative to the dollar.

After little ups and downs yen continued to appreciate and in April 1995, hit a peak of under ¥80 per dollar, temporarily making Japan's economy nearly the size of the US.

This good period was followed by the Japanese asset price bubble which pushed down the yen, but the Japanese currency started to recover and since 2008 is floating around 90 yen per U.S. Dollar exchange rate.