In the foreign exchange market, the Yen currency of Japan holds an extraordinary place. It is the 3rd most-traded global currency after the USD and the Euro. In a survey conducted in 2019, it was found that the Yen accounted for 16.8% of foreign currency turnovers compared to 32.3% for the Euro and 88.3% for the US dollar. The Japanese Yen also follows the US dollar and the Euro as an official foreign exchange reserve, with them being held in US dollars, whose value is more than 10-fold than the Japanese Yen, as recorded in the fourth quarter of 2021.
Since Japan is a primary exporter in the world, it has a surplus in its current accounts, and this restricts the Yen’s accumulation by the Central Banks in foreign nations.
Kavan Choksi Japan- the launch of the Yen
Kavan Choksi Japan is a business expert and investor known for his sound knowledge of finance and economics. He is a solid name to reckon with when it comes to guiding businesses during market stress to earn lucrative profits. He helps them in planning wealth strategies and making the most out of their investments.
The term Yen is derived from “en,” which is the Japanese word meaning circle or round object. It was launched in 1871 and replaced the metal coins of the Tokugawa shogunate. It also returned the patchwork of paper scrip that was earlier issued by the feudal lords of the nation.
The Bank of Japan is the sole authority to issue the Yen currency notes
In 1882, the Bank of Japan was created as the Central Bank of the nation. It had the exclusive power to give the Yen currency notes in the country. The first Yen was released in 1885, and after some time of steady valuation against the US and Canadian dollars, it later followed in their footsteps to embrace the gold standard.
The Second World War and its impact
However, World War II had a negative impact on the Yen’s value, and the occupation authorities of the USA after the war implemented a complicated web of regulated rates of exchange while gradually depreciating the value of the Yen against the US dollar in the middle of soaring inflation. In 1949, the value of the Yen was pegged against the dollar. However, it was permitted to become a floating currency after the Bretton Woods System of fixed rates of exchange currency lost its significance in the world.
Kavan Choksi Japan states that the Japanese Yen has been a safe haven currency in the past for a very long time. The reason is that during periods of market stress and risk aversion in the financial market, the value of the Yen rises.
He adds that the low-interest rates in the domestic markets in the middle of deflation have boosted the financial institutions in the nation to look for higher yields in foreign countries. This tendency is popularly known as a carry trade. When this investment flows in the reverse direction during market stress, the value of the yen increases.