Historical Sketch

According to the legend, Jimmu created the Japanese state by assuming the title "tenno" (emperor) in 660BC. Historical state tradition begins with the Kofun and Asuka periods in the 3rd century, but Japan remained divided into feudal states, with the emperor as nominal overlord, up to the unification during the Tokugawa shogunate in the early 17th century. In 1854, the United States militarily forced the opening of Japan which had banned almost all foreign contacts since the mid-16th century. This triggered the so-called Meiji Restoration of 1867 which ended the rule of the shoguns and modernized the state and society. The military strength led Japan into imperialism, expanding into Korea, China, Southeast Asia, and the Pacific. Japan entered World War II against the European colonial powers and the United States in December 1941 and was finally defeated in August 1945. The US-led Allied occupation of Japan lasted until 1952. The modern Japanese state, with a purely symbolic rule of the emperor, was recreated with the adoption of the 1947 constitution.

Monetary History Overview

Before modern times, Japan did not have a currency specified. For trade, gold and silver ingots were produced. During the Tokugawa Shogunate in the 17th century, the "three-currency system" of concurring gold, silver, and copper / iron coins got established. The coins were rectangular (gold, silver ingots) or round with a square hole as introduced in the 14th century as imitation of the Chinese Cash coins, the nominal base was the Ryo weight unit. The relative values of the different metals varied over time and between regions.

After the forced opening of Japan in 1854, the Spanish Dollar, which was already wide-spread in China, quickly established itself as a means of payment in the coastal regions. Ten years later, the Meiji Restoration completely revised the Japanese society. The monetary system was one of the fields of modernization. However, to stabilize the circulation, initially more coins old-style coins had to be issued, and Ryo dominated state paper money had to be introduced, replacing the circulating paper issued by regional entities (clan money). The specification of the new modern currency was debated as before the Meiji Restoration both gold and siver based trade had existed in Japan's "three-currency system". A first government resolution of January 1871 created the Japanese Yen as a silver currency, modelled after the Spanish Dollar, with auxiliary gold coins for larger transactions. But already in June of the same year, the government changed minds and issued a currency law in the gold standard with the Yen (almost) equal to the US Dollar. Silver coins were still part but restricted for use in foreign trade (with China and other Asian countries rooted in silver). The withdrawal of the pre-reform gold and silver ingots proved difficult and was completed only in 1898. In 1875, silver Yen coins were admitted for domestic transactions, as well, thereby effectively introducing bimetallism. In the mid-1880s, silver coins had driven out gold from circulation (Gresham's Law) so that the Yen had turned into a silver currency. In 1897, a new currency law brought Japan back to the gold standard with circulating gold coins at half the weight of the 1871 ones. The government had begun to issue paper money in the form of gold and silver certificates already in 1872. In 1882 the Bank of Japan began operations and took over paper money issuance three years later. In the 1930s, the gold standard was abandoned, and the Yen was pegged to the Pound Sterling, the repegged to the German Reichsmark after Japan and Germany had become allies in the Second World War.

The Japanese defeat in August 1945 and subsequent US-American occupation brought the collapse of the Japanese economy. The military administration defined a first exchange rate for the Yen in August 1945 at about 25% of the nominal wartime rate. Two revaluations of the military rate depreciated the Yen by more than 95% until, in April 1949, a first market value against the US Dollar could fixed, since at that time a first consolidation in the economy had taken place. The peg proved to be stable and remained unchanged for more than 20 years. In the 1960s, the Japanese economy began growing and the Dollar peg led to an under-valuation of the Japanese currency. In 1971, the Yen was upvalued against the US currency, and two years later, the exchange rate got floated. The upward trend of the Yen against the US Dollar continued throughout the next two-three decades, since the mid-1990s the exchange rate has remained more or less stable.

Japan joined the International Monetary Fund (IMF) on 13.08.1952.

Currency Units Timeline

Currency Institutes Timeline

Monetary History Sources