Archaeological evidence suggests that the Yapese are descended from migrants from the Malay peninsula, Indonesia, New Guinea and the Solomon Islands. Those living on Yap's outer islands have a more Polynesian heritage and are thus quite culturally distinct. The Yapese once reigned over a scattered empire, as far north as the Mariana Islands and encompassing Chuuk to the east. This empire was built upon the powers of magic: the Yapese employed sorcerers who were believed to have powers to induce famine, sickness and typhoons.
The first Europeans arrived in Yap around 1526. Early attempts to settle Yap were half-hearted at best. In 1731 a Spanish Jesuit mission was established on Ulithi, but when a supply ship returned a year later, they found that the islanders had killed all the colonists. Apparently Europeans got the hint and for the next 100 years their visits to Yap were few and far between. At the beginning of the 19th century, the Spanish claimed sovereignty over the islands until 1899, when it was ceded to Germany.
The Japanese Navy took control of the islands in 1914. As WWII approached, the Yapese were forced to build airfields and military fortifications for the Japanese. As punishment for noncooperation the Japanese would smash pieces of Yap's highly valued rai (stone money), sometimes using the broken pieces as road fill. During WWII, US forces decided not to invade Yap proper although they bombed the Japanese fleet docked in Chuuk lagoon and sank some 60 ships in February 1944. After the war, the USA took over and the Trust Territory that would later transform into the Federated States of Micronesia was set up.
In July 1978 the Trust Territory districts of Pohnpei, Kosrae, Chuuk, Yap, the Marshall Islands and Palau voted on a common constitution. The Marshalls and Palau rejected it and went on to establish separate countries. What was left became, by default, the Federated States of Micronesia in 1986.
Yap's recent history has been marked by stability. Most Yapese continue to make a living in subsistence farming and fishing, and copra production is still important on the outer islands. To this day, the village in which one is born determines one's name and caste. Members of a village belong to the same caste, although their rank within that caste varies. Caste has a more profound effect on people's status than upon their standard of living.
Despite the uneventfulness, there are signs of underlying tensions. Given that the FSM as a 'nation' is such an arbitrary construct, it's no wonder there's not a lot of unity. There's an ongoing debate among Yapese about the possibility of joining the Republic of Palau, unsurprising given Yapese share far more ties with Palauans than they do with Chuukese, Kosraeans or Pohnpeians.
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