Japanese commerce as well as a form of paper money developed in an area now known as Ise City in Mie Prefecture. Known as Yamada Hagaki (pictured below), the paper currency was issued in 1610 by Shinto priests (who were also merchants) as a form of receipt.

The system utilized (shown above) for the Yamada Hagaki was well established and trusted so even though it was privately issued, it also became widely accepted by the public nationwide. The Yamada Hagaki remained in circulation for over 300 years and shares common characteristics with modern Japanese bank notes. The original can still be viewed at the Bank of Japan Currency Museum. I also have a Bank of Japan Currency Museum photo gallery (note that I just rushed through taking pictures due to the sheer number of displays so there are a number of blurry and poorly composed shots).

Japan's first nationally accepted paper currency known as the Dajokan Satsu (shown below) was issued after the Meiji Restoration in 1868.

153 national banks began to eventually issue paper currency which were originally printed in the United States and therefore, bore a striking resemblance to U.S. paper currency of that period (see below). Japan eventually began designing and printing its own banknotes in the late 1890's.

The following video from the late 90's shows how Japanese banknotes are created including the amount of labor that went into cultivating and harvesting the mitsumata (三叉) shrub. Mitsumata use to be used for the bulk of the paper that the currency was printed on since the Meiji period.

Due to the changing structure of Japanese farmers, the amount of mitsumata production has been decreasing every year resulting in higher costs. Because of that, most current day banknotes are made from lower cost Manila hemp. The Ministry of Finance still purchases a small supply of mitsumata for creating some bills.