Actually, ecchi (which is merely the japanese pronounciation of the letter H) has a very wide meaning:
It can act as a general adjective for everything having to do with sex, as in ecchi na hon, a book with sexual content. Additionally, it's often used as a synonyom for sex, as in ecchi suru, literally "do H", which means to have sex.

The Japanese slang H

Use of the slang "ecchi" in Japan
The Japanese pronounce the letter "H" as either "ecchi" (sounding similar to etchy) or "eichi". The former pronounciation is also used as a slang, either written phonetically in katakana or simply with the latin letter "H". In modern days, the casual slang, when used as an adverb or an adjective, roughly means sexual, or "sexy." When used as a noun, it could mean the act of sexual intercourse. In fact, this is the most popular word chosen out of all the synonyms that mean "sex", by adults and by adolescents. It could also be referring an act or an object that is sexually suggestive, or a person who likes sex too much.

The etymology of the slang "H"
There are three theories of etymology, two of which I think is plausible. First, I'll mention the one that I don't agree, and then the two more plausible explanations.

"Wada Heisuke" Theory
According to "Modern trendy words dictionary" (Jitsugyouei Nihon sha Publishing, 1933), it is said that when the kanji to Mr. Wada Heisuke's name is reversed, it reads "sukebei tawa", and "sukebei," or "sukebe" is a slang for perv. However, whoever is Wada Heisuke is not explained, or why his name would be used for the slang.

Husband Theory
In a 1935 publication of a collection of secret code languages, published by the Osaka Police Association1, H is a slang derived from the initial of husband. This actually makes sense, since during the late Taisho era, female students are said to have used H to refer to lesbians.2

Hentai Theory
Well, less of a theory but more of a well-accepted fact that the slang H became widely known from a fictional series in Asahi Shinbun titled "shiroi magyo" (white devil fish) during June 6, 1955 - March 15, 1956. In it, the author gives a character the nickname of H, the initial of Hentai. Another earlier source also also supports this theory. In the July 13th, 1952 issue of Asahi Weekly, in the article with a title that could be translated as "contemporary student vocabulary" it is mentioned that H is the head of "Hentai-sei" (perverted sexuality).4 Since this is a slang, it could well be the case that one person guessed the etymology, and another person bought the idea and encorporated it into a work of fiction.
Hentai can mean several things in biology and physics, however in a sexually related use, it is either an abbreviation of hentai seiyoku, or a person inclined that way. Hentai seiyoku is the degree of sexual desire or method of obtaining sexual satisfaction which is abnormal, or that goes against social norms.3 Japanese love to abbreviate. Even anime is an abbreviation.

H and hentai are used differently in Japan. H has a more feminine connotation than, say, sukebe, which usually refers to male perverts (but can also refer to female pervs). Hentai, on the other hand, is a more crude word describing what is less socially acceptable. Note, this is a slang and is not a word the police would choose in categorizing various types of sex offenders. The word hentai was popularly used in the abundant erotic literature that flourished around the late Taisho era and early Showa era2.

With the introduction of Japanese anime into the West, hentai is almost always used only when referring to the hentai anime genre.


Sources in Japanese

Most of the facts and sources came from a page (http://home.highway.ne.jp/sfuru/okigaru9803.html) written by Tsuru Furukawa. Other sources:
1 - Reported in "Kindai Shomin Seikatsushi" (Nanpaku publishing)
2 - http://yam.vis.ne.jp/ka200101.htm
3 - http://dictionary.goo.ne.jp
4 - http://www.d1.dion.ne.jp/~kyoko_s/gogen2.html

I remember one day while I was searching through J-list for interesting clothing I found a truly interesting shirt.

Pictured on the army green shirt was a wide circle (not an ellipse) and centered in the circle was a tan picture of one rhino mounting another, underneath it was the word "ecchi". Upon seeing this I thought it fairly bizarre, and thought "who would wear that?".

Several years later I saw it at an anime convention and I thought to myself "holy shit, that's awesome, I'm buying that!" so I did, and now I wear it on a regular basis

Now here's a bit more about the ecchi! You know those fanservice shots you occasionally see in anime? That's ecchi. You know how occasionally an anime girl will slam some guy across the head with a mallet from nowhere? It's because the guy was being ecchi. You know those occasionally mildly suggestive poses that one might randomly come across in manga or anime? Yep, you guessed it, more ecchi.

Now why exactly is the word ecchi used? Ecchi is a phonetic way of saying "H". H is a letter that can actually be used to represent an entire word. Sometimes the letter H represents the word "Hentai" which generally means perverted (it can also mean anime or manga of the particularly perverted type).

Now this brings me on to another point about my shirt! The rhinos that I mentioned earlier? The one mounting the other? Yep, I think if nothing else, that's pretty damn ecchi! (Not to mention funny).

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