Use a non-nullable bit
- What if you want J and N for German? Or other languages? This is client formatting
- Ditto "true", "false"
- What about y/Y/n/N? Unicode Ys and Ns?
- You'd need a check constraint to restrict to Y or N: why when you have this anyway with bit?
Finally, SQL Server has no boolean type as such: client code will interpret bit as boolean though
Edit, after comment on question.
If you need to add more values, then I suggest a lookup table and foreign key. This means you can support new values without changing code (CHECK constraint) and/or datatypes.