As the Summer Olympics kick off in Tokyo, all eyes are on Japan for several weeks. In the realm of global finance, the Japanese yen attracts similar interest almost daily. It regularly occupies a place on the podium of the world's most important currencies, second only to the dollar and the euro. What is this phenomenon?
How is it possible that the yen (JPY), used exclusively in one relatively small Asian country, has gained such a strong position among almost 200 currencies? As the XXXII Summer Olympics take place in Tokyo, it is worth taking a closer look at the phenomenon of the Japanese currency and the economy behind it.
Safe haven in Tokyo Bay
The yen's presence on the currency podium results from the compilation of the economic power of the Land of the Cherry Blossom and the specific characteristics of the currency that translates into the reputation of the so-called safe haven. In sports terminology, we are dealing with an athlete who is ready to go and does not dip below a certain level. When competitors have problems with fluctuations in form, this athlete seems to be a solid anchor of stability. The turbulence on the stock exchanges and the sharp fluctuations in commodities prices and many currencies make investors look for such safe havens to escape uncertain times. This is when they invest their capital in the yen.
"The yen depreciates slightly during periods of prosperity and positive market sentiment. When times are turbulent, it attracts capital. The role of the so-called funding currency is crucial. For years, Japan has had some of the lowest interest rates in the world, allowing investors to borrow cheaply in yen to seek bargains in other, riskier markets. When something bad starts to happen, these strategies are abandoned, and the yen is bought back. Japanese investors, who for years have been forced to look for higher yields on riskier foreign markets, also close their positions at such times and bring capital "home"," explains Bartosz Sawicki, Market Analyst at Conotoxia.
The economy also on the top
For many years, Japan has occupied high places in international competitiveness surveys, leading in transport infrastructure (especially railways) and healthcare. It also holds high positions in lists of innovation and development of the banking system.
Over the years, Japan has been second only to the United States in the list of the world's richest countries. Even though it has lost second place to China, it is still on the podium. Exports (mainly electronics and cars) play an important role in this. This is why the yen exchange rate is so important to Japan. As the currency appreciates, exported goods become more expensive. As a result, they are less competitive and attractive for foreign buyers.
"The Bank of Japan steps in and intervenes every time the yen becomes too strong. In this respect, the Bank of Japan is like an experienced, wise coach who selects the right workout plan so that the athlete's optimum form does not appear before the most important start," Conotoxia Analyst says.
If you count, pay attention to hundredths
For a sprinter competing for a medal at the Summer Olympics in Tokyo, hundredths of a second are important, but for a regular person interested in the yen exchange rate, hundreds are what count. Despite its strong position, the Japanese currency is so cheap that exchange offices do not give its unit price, but quotations referring to 100 JPY. This is why converting prices of Olympic souvenirs in Tokyo can be a bit tricky. Therefore, it is worth remembering that 100 JPY is approx. 0.92 USD (exchange rate of Conotoxia.com on 3.08.2021).
Officially, the yen is subdivided into 100 sen and 1000 rin, but these have not been used for many years due to their low value. The smallest denomination you will come across is the 1 yen, although it too should be treated like a dime floating on water. Made of aluminium, the coin is so light that it can actually float on the surface of water.
The 5 yen coin has a special significance in Japanese culture. It is distinguished not only by its appearance (it has a hole in the middle) but according to superstition, it also brings luck. For this reason, it is often offered as a donation in temples. Could this be the secret weapon of the Japanese Olympic team...?
While in Europe, it is rare to come across a 500-euro banknote, in Japan, paper denominations start from 1,000 yen. No one is particularly surprised by a banknote printed with 5,000 or 10,000 yen. In the Land of the Rising Sun, it is easy to become a millionaire: all you need is an estate worth around 9,000 USD.
When you are in Japan, it is better not to carry cash, especially given the technological advancements in the country. Buying currency at exchange offices, airports or railway stations can be tedious and expensive. The easiest and most cost-effective solution seems to be a multi-currency card, which allows savings of up to several percent. Not only can you pay in most of the world's currencies (including yen), but you can also easily manage it in a mobile app and withdraw money from foreign ATMs without being charged. These cards can be in traditional as well as virtual form, allowing you to pay with your phone, watch or band. This solution is also much safer: you don't have to carry cash with you everywhere you go and worry about losing it or having it stolen.
When competing, only fair play is involved
Fair play is particularly important in the Olympic Games, and any kind of cheating or illegal use of doping substances is fiercely fought against. The Russian team, for example, has learned this the hard way: they cannot perform under their own flag. Their country has been banned from top-level sporting events for two years for doping.
The yen also says "no" to fraudsters. Japanese banknotes are among the most secure in the world. Potential counterfeiters have to deal not only with numerous holograms and watermarks but also with tactile intaglio printing, which makes them very difficult to counterfeit.
Counterfeiting of the yen is losing ground for another entirely different reason. In Japan, more and more transactions are carried out without cash. Therefore, the game is not worth the candle, and let us hope the same is true of the athletes competing in Tokyo.
