BEIJING — Japan and China are expected to start
directly trading their currencies in June as part of efforts to boost
bilateral trade and investment, financial sources in Beijing said
Saturday.
With the new step, exchange rates between the yen
and the yuan will be determined solely by transactions of the two
currencies, eliminated the role played by the dollar in setting yen-yuan
rates under the current system.
It will be the first time that China has
allowed any major currency except the dollar to be traded directly with
the yuan, also known as the renminbi, the sources said.
The yen-yuan exchange system would help
businesses in China and Japan, the world's second- and third-largest
economies, and reduce the risks associated with exchange rate
fluctuations in the dollar. It would also cut transaction costs
involving the three currencies.
In addition, the system would increase the
exposure of the yen and the yuan in global currency markets, while
encouraging individual investors in Japan to purchase Chinese financial
instruments.
Tokyo and Shanghai are expected to be the markets handling the currency exchanges.
Market participants said the new measure
could give Tokyo an advantage in yuan trading over other financial
centers, such as London and Singapore, which have also been calling for
the creation of a mechanism allowing their currencies to be exchanged
with the yuan.
The Finance Ministry, the Bank of Japan and the
Financial Services Agency have been holding talks with the People's Bank
of China on direct yen-yuan trading since Prime Minister Yoshihiko Noda
and Chinese Premier Wen Jiabao agreed to boost bilateral financial
cooperation at meeting in Beijing in December.
The Chinese central bank has been preparing
for yen-yuan trading, such as examining ways to set a reference rate
around which the yuan can fluctuate against the yen in a managed
floating system, the sources said.
A Japanese banking source expressed hope the new
measure would lead to steady growth of an exchange market for the two
currencies, saying, "We see high potential demand for direct trading
between the yuan and the yen."
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