The yen is the official currency of Japan Explained

Ashly Chole Senior Finance Researcher

Last Updated 26 March 2024

The yen is the official currency of Japan

The yen serves as Japan's legal tender. The sen coin, often known as 100 sen, has a value of 10 yen. The value of the yen can be changed by the Japanese government. To ensure that foreign currencies retain their value, the government buys and sells them. The Bank of Japan serves as the nation's central bank. The Bank of Japan controls and issues the currency used in Japan.

The Bank of Japan (BOJ), the nation of Japan's central bank, oversees and produces the currency used in both its own country and other nations across the globe. Apart from its intrinsic worth, a currency's value is determined by various factors. When someone has a lot of money set aside, their savings will cost more, but only because there aren't as many dollars available for everyone else who wants some. The amount of money a person has and the number of individuals who desire it are two examples of other factors that affect a currency's value. Hence, if someone has a lot of money in their savings account, the price will increase—but only because there are fewer dollars available.

The yen's value can be altered by the Japanese government

By purchasing or selling foreign assets, the Japanese government can alter the value of the yen. By altering interest rates and other factors, the government is able to modify the value of the yen. Because it has a duty to preserve the value of its currency, the central bank will increase money printing in situations where there is an excess of supply and decrease it in those situations where there is a deficit. This implies that changes made by banks and governments have an influence on how much consumers are ready to spend in Japanese yen for items as well as how much money they have left over each month after paying their expenses.

Foreign currencies are bought and sold by the government

To maintain a stable value for the yen, the government buys and sells foreign currencies, increasing its purchases during times of low prices and decreasing its sales during times of high prices (a so-called 'managed float'). This policy has been in place but was suspended during Japan's 1990s bubble economy. It was resumed after another economic downturn brought on by declining oil prices led to higher inflation rates than anticipated by consumers who had previously experienced lower prices on goods they were used to purchasing frequently, like foodstuffs like rice or bread, forcing them onto other products like meat or fish instead, which would normally be cheaper than those seen previously. This issue was mostly resolved as a result of firms starting to give discounts to customers who made direct purchases from them rather than through third parties, as well as some consumers gradually switching back.

Bank of Japan

The Bank of Japan serves as the nation's central bank. The Bank of Japan is in charge of controlling the country's money supply through open market transactions and other actions, as well as setting interest rates and printing yen. managing the nation's money supply by acquiring assets from banks at low interest rates, then reselling those assets after they have reached maturity at higher prices. Controlling stock markets by acquiring company shares at cheap prices (purchasing undervalued stocks) and then selling them at higher prices (selling overvalued stocks).

The Bank of Japan is one of three organizations in charge

In Japan, currency is controlled and printed by the Bank of Japan. Together with the Ministry of Finance and the Ministry of Economy, Trade, and Industry, the Bank of Japan is one of three organizations in charge of managing the amount of money in the economy. Banknote supply is regulated by the Bank of Japan. If necessary, it can also produce coins, although these are not regarded as acceptable forms of payment under the law; they are either referred to as 'notes' or 'coins' depending on whether they are issued by commercial banks or government agencies. This central bank controls the exchange rate between the yen and other currencies, so paying a bill with yen is acceptable in accordance with international law, which mandates that all currencies be convertible on an equal basis (for example, dollars can be exchanged across borders).

A currency's worth is not only determined by its inherent value

It's critical to realize that a currency's value is independent of its fundamental worth. Instead, it depends on how much a nation will spend it on. Therefore, supply and demand determine the value of any given currency: if more people want to buy something from someone, then that person's currency will become stronger because more people are willing to buy it from that person at those prices; conversely, if fewer people want to buy something from someone (perhaps due to an economic downturn), then that person's currency will weaken in value because fewer people are willing to pay up for what they need or want.

It's also critical to keep in mind that when we're discussing national economies here as opposed to individual customers, what counts is not only how much dollars or yen flow each month but also whether those dollars or yen circulate outside of their home nations (i.e., between countries).