Japan, China to begin direct currency trading on 1 June

Japan and China will begin direct Yen-Yuan trading on 1 June, Japanese Finance Minister Jun Azumi said Tuesday, abandoning the existing system that determines Yen-Yuan rates via their USD values.

The move is seen as a way to boost trade and investment between the World's 2nd and 3rd largest economies, and as part of measures China took to internationalize its currency.

The direct currency trading will be dealt at the Tokyo and Shanghai markets, Mr. Azumi told a press conference in Tokyo.

However, the trade in the 2 markets will be slightly different.

China will set a daily rate according to dealer quotes allowing trade to move within a 3.0% band above or below the line compared with a 1.0% band fixed to Yuan-USD trading.

The Chinese central bank Tuesday introduced a rate of 7.9480 Yuan for every 100 Yen, according to reports.

But there will be no fixed rates in Tokyo trade. The 2 currencies would trade freely in Tokyo markets.

The direct trading will lower transaction costs and reduce settlement risks of the financial institutions and facilitate the using of both the Japanese and Chinese currencies, said Mr. Azumi.

The Yen-Yuan direct trading will also inject vitality into Tokyo's financial market, he added.

It is the first time China has allowed a major currency other than the USD to trade directly with the Yuan, the Japanese media reported.

China overtook Japan to become the World's 2nd largest economy in Y 2010, and the 2 countries are working actively together to forge closer business ties.

China is Japan's largest trading partner, but large portion of their mutual trades are settled by the USD's.

According to statistics of the Asian Development Bank, only 0.3% of exports and 1.7% of imports from China to Japan were settled in Yuan in Y 2011.

Mutual trades settled in Yen are slightly higher, take the year Y 2009 for example, 18% of total exports from China to Japan were settled in Yen.

The direct Yen-Yuan trading will reduce foreign exchange risks in bi-lateral transactions, and will bring more growing potentials for both China and Japan's financial institutions and trading partners, said Doctor Xing Yuqing, economist from Asian Development Bank Institute.

It is an important step for Yuan's internationalization, and it will also promote Asian currencies' entire standing in the Global economy, Xing said.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.