Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan advance with extraordinary rapidity to the rank of second most technologically-powerful economy in the world after the US and third-largest economy after the US and China, measured on a purchasing power parity (PPP) basis. (Using market exchange rates rather than PPP rates, Japan's economy is larger than China's.) One notable characteristic of the economy is the working together of manufacturers, suppliers, and distributors in closely-knit groups called keiretsu.
The Japanese Yen is the currency of Japan and is a strong currency within Asia. In Japanese it is usually pronounced "en", but the pronunciation "yen" is standard in English.
The Japanese currency is widely traded against the US Dollar, the Euro and sterling. Japan has always been a strong economy and traded widely. The economy in Japan flourished during the 1970's and 1980's and as a result Japan bought and sold high volumes of currency. The USD/JPY or US Dollar/Yen exchange rate is the most common cross rate followed by the GBP/JPY exchange rate.
The relative value of the Japanese currency is determined in foreign exchange markets by the forces of supply and demand. The supply of the yen in the market is governed by the desire of yen holders to exchange their yen for other currencies to purchase goods, services, or assets. The demand for the Japanese currency is governed by the desire of foreigners to buy goods and services in Japan and by their interest in investing in Japan (buying yen-denominated real and financial assets).
In the 1970s, Japanese government and business people were very concerned that a rise in the value of the yen would hurt export growth by making Japanese products less competitive and would damage the industrial base. The government therefore continued to intervene heavily in foreign-exchange marketing (buying or selling dollars), even after the 1973 decision to allow the yen to float.
The Japanese currency lost most of its value during and after World War II; after a period of instability, the yen was pegged at 1 US dollar = ?360 from April 25, 1949, to until 1971 when the Bretton Woods system collapsed and the value of the Yen began to float. As of December 2005, there are about ?115 to the US dollar, about ?139 to the Euro, and about ?205 to the Pound sterling.
Japanese Yen futures contracts first started trading at Chicago Mercantile Exchange (CME) in May 1972 as part of the International Monetary Market, a division of the Exchange. Options contracts began trading in 1986.
Japanese yen futures and options on futures contracts are designed to reflect changes in the U.S. dollar value of the yen. Futures contracts are quoted in U.S. dollars per yen, and call for physical delivery at expiration. Exercised options contracts are settled by the delivery of futures contracts.
Financial institutions, investment managers, corporations and private investors can use Japanese yen futures and options to manage the risks associated with currency rate fluctuation and to take advantage of profit opportunities stemming from changes in currency rates.