What is the Currency of Japan?

The correct answer is the Yen.

The Japanese Yen (¥) is the official currency of Japan and stands as one of the most powerful and widely traded currencies in the international financial system. Introduced in the late 19th century, it replaced a complex system of local currencies and helped transform Japan into a modern, industrial economy. Today, it is a "safe-haven" currency, often sought by investors during times of global economic uncertainty.

The Meiji Restoration and the Birth of the Yen

The Yen was officially adopted by the Meiji government in 1871. Before this, Japan used various "Hansatsu" (paper money issued by feudal lords) and coins of different weights and values. The word "Yen" literally means "round" or "circle," reflecting the government's move toward standardized, round-shaped coins similar to those used in the West. This modernization was a crucial part of the Meiji Restoration, a period when Japan rapidly transitioned from a feudal society to a global power.

The Symbol and Sub-units

The international symbol for the Yen is ¥, which it shares with the Chinese Yuan (though they are different currencies). In Japan, however, the kanji character 円 is used. Historically, the Yen was divided into "Sen" (1/100th of a Yen) and "Rin" (1/1000th of a Yen). However, these smaller units were removed from circulation in 1953 as the value of the currency changed, and today, the Yen is only used in whole units.

Banknotes and Security Features

Japanese banknotes are issued by the Bank of Japan and are famous for their high quality and sophisticated security features. They are printed on special paper made from "mitsumata" (oriental paper bush) and "abaca" fibers, giving them a distinct texture and a light yellow tint. The notes feature prominent Japanese figures in science, literature, and education. For example, the 1,000-yen note often features Hideyo Noguchi, a famous bacteriologist, while the 10,000-yen note has traditionally featured Fukuzawa Yukichi, a key philosopher and educator.

The Yen in the Global Economy

The Japanese Yen is the third most traded currency in the foreign exchange market, following the US Dollar and the Euro. It is also a popular reserve currency. One of the unique aspects of the Yen is its historically low interest rates, which led to the "Carry Trade"—a financial strategy where investors borrow Yen at low rates to invest in higher-yielding assets elsewhere. Because Japan is a major exporter, the strength of the Yen is closely monitored by the government; a "weak" Yen makes Japanese exports like cars and electronics cheaper abroad, while a "strong" Yen makes them more expensive.

The "Safe-Haven" Status

In the world of finance, the Yen is often referred to as a "safe-haven" asset. This is because, despite Japan's high national debt, the country is a net creditor to the rest of the world. When global markets become volatile or political tensions rise, investors often buy Yen, believing it will hold its value better than riskier currencies. This explains why the Yen sometimes increases in value even when the global economy is struggling.

Understanding the Japanese Yen is essential for anyone interested in global trade and the history of East Asian development. Its journey from a newly standardized coin in 1871 to a pillar of modern finance is a reflection of Japan's own remarkable story.