There were originally kana in the man'yōgana system for "ye", 江, and a kana, "ei" 曵 that may also have been "ye". One kana per "sound" is a relatively modern development.
The distinction between e and "ye" was lost by the time of the development of hiragana and katakana; many people think the ye pronunciation won out (and that is the one used in southern dialects, to a large degree), to change to e during the Edo period.
The kokugakusha of the Edo period investigated the spelling of the late Nara/early Heian period, and it came to be reinstated as rekishiteki kanadukai (`historical kana usage') and is what was taught--until about 1950--in Japanese schools. Wa, wi, and wo (instead of ha, hi, ho and i, o) were also revived as spelling distinctions, something like distinguishing "right" and "rite" in English, or "knew" and "new." However, there was no attempt to revive the e/ye distinction in spelling.
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