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Direct trading of yen and yuan to start

By Zhao Qian (Global Times)

08:13, May 28, 2012

China and Japan plan to launch direct trading of the yen and the yuan as early as June, a step that could promote the two counties' trade and financial transactions and push forward yuan internationalization, analysts said yesterday.

Several banks of the two countries, including Bank of Tokyo-Mitsubishi UFJ and Bank of China, will start the direct trading in Tokyo and Shanghai, and set exchange rates themselves, the Japanese newspaper Yomiuri Shimbun reported over the weekend.

People's Bank of China could not be reached for comment on weekend.

The step follows an agreement between the two countries signed in December 2011, when Japanese Prime Minister Yoshihiko Noda visited China, to push for trading of the currencies.

The yen will become the first major foreign currency besides the US dollar that can be traded directly with the yuan.

"Rising bilateral trade volume would be the driving force for the move," Zhang Yongjun, deputy director-general of the Research Department at the China Center for International Economics Exchange, a Beijing-based government think tank, told the Global Times yesterday.

The two countries' total trade volume last year amounted to 27.54 trillion yen ($358 billion), up 3.9 percent from the previous year, according to Japan's Ministry of Finance.

Top leaders of China, Japan and South Korea reached an agreement during a summit this month to begin free-trade negotiations later this year, amid an expected drop in transactions with key markets like the US and Europe.

Direct trading between the two currencies could lower financial risks caused by fluctuations in the dollar, as well as reducing trade transaction costs, the Japanese media reported.

Currently, trading of the two countries' currencies can only be completed via the interim step of being exchanged into dollars.

The commission charge for this that must be paid to the US Federal Reserve Board every year is estimated to be around $3 billion.

"It is a necessary step for yuan internationalization," Guo Tianyong, director of the Research Center of China Banking at the Beijing-based Central University of Finance and Economics, told the Global Times yesterday.

"Direct trading of the yuan with other currencies like the euro and the pound may also be realized in the future, driven by demand for bilateral trade and investment with other economies," Xiang Songzuo, deputy director of the International Monetary Institute with the Renmin University of China, told the Global Times yesterday.

But Xiang warned of financial risks caused by currency fluctuation. "Each side of the trade transactions and investments needs to pay attention to the possibility of speculation," Xiang said.

The People's Bank of China said in December 2011 that it would not only promote cross-border transactions between the yuan and the yen, but also support Japanese companies to issue renminbi bonds in Tokyo and other overseas markets.

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