WHY TRADE THE YEN?
The Japanese economy is one of the strongest in the world. Only the United States has a higher Gross Domestic Product. Japan’s main export goods are cars, electronic devices, and computers. The most important single trade partner is the United States, which imports more than one-quarter of all Japanese exports. Other major export countries are Taiwan, Hong Kong, South Korea, China, and Singapore.
Japan has a large surplus in its export/import balance. The most important import
goods are raw materials such as oil, foodstuffs, and wood. Major suppliers are the
United States, China, Indonesia, South Korea, and Australia. Manufacturing, construc-
tion, distribution, real estate, services, and communication are Japan’s major industries today. Agriculture makes up only about 2 percent of the GNP. The most important agricultural product is rice. Resources of raw materials are very limited and the mining industry rather small.
HISTORICAL PERSPECTIVE
The history of Japan is lost in legend, and reliable records date back only to about A.D. 400. Korean invaders probably introduced bronze and iron implements around the first century. Portuguese sailors made the first European contact with Japan in 1542. Commercial trading with the West developed gradually but only on a very limited scale. The Yen was established as the official unit of currency in 1871 by order of the Meiji government. The Bank of Japan, established in 1882, issued its first Yen bank notes in 1885.
In 1945, in accordance with the emergency measures intended to suppress the post-
war hyperinflation, the Japanese people were obligated to deposit their money by a certain date in monetary institutions for a specific period of time. Banknotes then in
circulation were made invalid. Withdrawal of the frozen deposits in the form of the new banknotes was then allowed to a limited extent. But not enough new banknotes were
printed for withdrawal. To cope with this, existing banknotes with adhesive stickers
were regarded as new banknotes and circulated until the end of October in that year as a makeshift arrangement.
Japan’s economy crashed as a result of defeat by the Allies, causing a 49.6 billion
Yen loss due to wartime damages. The total reached 1.38 trillion Yen by the end of 1947 (equal to 20 percent of Japan’s pre-war domestic assets). National income dropped to 6.5 million Yen.
In 1946 the Economic Stabilization Board was established, which put almost all sec-
tors of the national economy (commodities, prices, transport, banking, etc.) under the systematic control of the board. In October the Reconstruction Finance Bank was established, which furnished enormous volumes of funds to industries vital to economic recovery, such as the coal, steel, and chemical fertilizer industries.
In 1949 Joseph Dodge, the economic advisor to the General Headquarters of the Al-
lied Occupation Forces, mapped out the Dodge Line Policy to promote a self-sustaining
economy. This plan established a single exchange rate for the Yen and attempted to stabilize the currency as well as close the gap between domestic and overseas prices in general. It also curtailed government spending with a tight-money policy. By this time, the exchange rate had risen to 360 Yen to the U.S. dollar.
During the Korean War (1950–1953), special procurement contracts by the Ameri-
can government for goods and services generated $315 million for Japan. During this
time period, Japan attempted to reduce dependence on imports by increasing modern-
ization of processing in the four major industries (steel, coal, etc.), importing new technologies, and improving on old ones (synthetic fibers and petrochemicals). Japan’s foreign exchange reserves quadrupled from $260 million in 1949 to $1.06 billion in 1951.
In 1953 Japanese exports were 50 percent greater than before the Korean War. Domestic
prices rose in response to the increase in export and import prices.
Due to a drop in exports from 1963 to 1965, Japan experienced another reces-
sion. The government issued long-term public bonds. Foreign exchange reserves re-
mained stable at about $2 billion. From 1965 to 1970, the Japanese economy began to
prosper. Average growth rate of the economy remained stable at 11.8 percent for
these five years. Today, Japan has the second highest GNP in the world behind the
United States.
In 1971 Japan’s foreign exchange reserves reached $15.2 billion. Modernization
of industrial equipment over the past 10 years resulted in better prices and more efficient production of goods. The Bretton Woods system of fixed exchange rates for
currency worldwide collapsed as a result of the devaluation of the U.S. dollar. President Nixon enacted an emergency policy that applied a 10 percent surcharge to
imports to the United States and also suspended the conversion of the U.S. dollar
into gold.
The Smithsonian floating exchange rates for worldwide currencies were imple-
mented in 1973. The Japanese Yen was revalued against the U.S. dollar at a lower rate,causing an increase in imports into Japan due to cheaper import prices. In the sameyear war broke out in the Middle East, the export of crude oil was temporarily suspended, and oil prices increased worldwide. Japan was one of the many nations that underwent severe recession due to the oil crisis and collapse of the fixed exchange rate system. In 1979 a second oil crisis broke out, and plunged Japan from a positive $13.9 billion to a $7 billion deficit by 1980.
The rise of the Japanese Yen from 1971 to the present is one of the most dramatic
economic phenomena in recent years. This fact alone makes it a prime Forex trading
candidate. Additionally, the trading volume of the Yen at the Chicago Mercantile Ex-
change is exceeded only by the Euro currency. Further historical information on the Yen can be found at http://www.imes.boj.or.jp.
BANKNOTES AND COINS
The Japanese currency is the Yen, which literally means “circle” since the previous
coinage was oblong. One Yen corresponds to 100 sen. However, sen are not used in
everyday life anymore. Coins come in 1 Yen, 5 Yen, 10 Yen, 50 Yen, 100 Yen and 500 Yen.
Bank note denominations are 1000 Yen, 2000 Yen, 5000 Yen, and 10000 Yen.
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