"Funny money"

So far my sources in Japan are saying that the lobby for government issued banknotes is grandstanding to try to force the BOJ to be more aggressive (this happened before when political pressure had the BOJ keep increasing the reserve target even though they knew it would have no effect) and is NOT a real consideration.

In any case for the YEN the bigger deal is repatriation.

The process of repatriation is probably at most halfway through. Yen repatriation commenced in September 2008. Based on the investment trust fund (ITF) (these are similar to mutual funds) flows, repatriations began in earnest in September 2008, and remained intense throughout 4Q08. The movement of USD/JPY in 2008 was broadly consistent with these ITF flows. With the intensification of pressures on risk assets so far this year, these repatriation flows continued in January, forcing JPY crosses lower. Broadly speaking, in 4Q08, we saw monthly repatriations at a size of US$38 billion per month, about six times the size of monthly outflows during 2004-2007.

The outstanding external ITF stock of investments, as of November 2008 reached around US$233 billion, down from a peak of US$330 billion reached in October 2007, and was similar in size to that of July 2006. There is still substantial scope for further repatriation of ITF money.
This does not include pension funds and life insurance companies. If we look at the BOJ’s balance of payments (BoP) data - which are more comprehensive and three times the size of ITF flows, we see that monthly portfolio outflows have averaged US$11 billion during 1999-2007, and the repatriation has been negligible in recent months. This suggests that Japanese pension funds and life insurance companies are substantially behind in repatriating assets, compared to mutual funds.