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Direct yen-yuan trading helps expand China-Japan trade

By Ye Xiaonan (People's Daily Overseas Edition)

08:02, June 01, 2012

Edited and translated by People's Daily Online

Japan and China will begin direct yen-yuan trading on June 1, Japanese Finance Minister Jun Azumi said Tuesday, according to Xinhua reports. Insiders said the cooperation will definitely favor both countries’ import and export trade and the yuan’s globalization. But attention should be paid to potential risks so as to advance steadily.

Reducing dependence on U.S. dollar encouraged

Several Japanese mainstream media said that the Chinese and Japanese governments intend to reach an agreement on direct exchange in June and put it into operation immediately. It will make the yen the first foreign currency that the yuan can exchange for directly after its elimination of the U.S. dollar as the intermediate and the entry into the world money market. This marks a crucial step for the yuan in the international foreign exchange market.

International finance expert Zhao Qingming said that the yen has long been used as the settlement currency in China-Japan trade. In trade and financial activities between the two countries, the yuan exchange rate with the yen is counted on their respective rates with the U.S. dollar. Just as the Japanese media said, the dependence on the rate with the U.S. dollar might well continue for banks involved in the transactions that will decide on the yen rate with the yuan in the Tokyo and Shanghai markets respectively. Thus, it is more probable to give the banks of the two countries more flexibility, encourage the reduction of banking dependence on the U.S. dollar, and drive the use of the yen or the yuan as the settlement currency.

Help expand China-Japan trade

But according to insiders, if the direct exchange between the yuan and yen does happen, banks in the two countries will set a daily benchmark value and floating range based on market supply and demand before offering transaction services to enterprises in China and Japan. This will become a part of the yuan globalization, not only aiding the foreign trade enterprises with the reduction of exchange costs, but also helping to raise the international status of the yuan.

“Direct exchange between the yen and the yuan is a move responsive to the trade demand between the two countries and comes out of the actual need of the real economic development,” said Sun Lijian, professor and deputy dean of the School of Economics at Fudan University.

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