China and Japan will begin work this month to promote the direct exchange of their currencies as trade between their two countries grows, the Nikkei newspaper reported on Friday. The bulk of trade between the world's second-largest and third-largest economies is currently settled in dollars, due in large part to financial regulations and market custom.
But more direct exchange of the yen and the yuan would lower currency risks and settlement costs, and two governments agreed in December to take steps to facilitate such trade. The Nikkei said a bilateral working committee will look at encouraging investment in banking systems, boosting the number of foreign exchange dealers, as well as review regulations and consider setting up an offshore yuan trading center in the Tokyo foreign exchange market.
Japanese Finance Minister Jun Azumi will visit China on the weekend to discuss bilateral financial co-operation and Europe's debt crisis. China has become Japan's biggest export destination and No 1 trading partner, taking over the United States. The gradual relaxation on the use of the yuan in international transactions has led to an increase of Chinese trade now being settled in yuan.
Other countries including Britain, Singapore and Taipei are seeking a share of the growing offshore yuan business, while Chinese authorities push on with a series of initiatives to internationalise the currency. The committee, which will first meet in China, will be comprised of officials from Japan's Finance Ministry, the Financial Services Agency, the Bank of Japan and China's central bank, the newspaper said.
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