Beijing, China (AHN) – The governments of China and Japan, the world’s second- and third-largest economies, announced Monday an agreement to directly trade in yuan and yen instead of converting their currencies first to dollars.
Chinese Premier Wen Jiabao and Japanese Prime Minister Yoshihiko Noda also agreed during a meeting in Beijing ending on Monday that Japan will hold yuan in its foreign-exchange reserves, which are now largely denominated in dollars.
The direct currency swap is seen to benefit Chinese and Japanese companies in terms of reduced trading cost and currency risk. The direct currency exchange will also ease investments between the two countries.
Trade between the two countries amounted to $340 billion in 2010. From January to November this year, Japan exported $138.5 billion (10.8 trillion yen) to China and imported $154 billion (12 trillion yen) with 60 percent of the trade transactions settled in dollars, according to Japan’s finance ministry.
A joint working group will be formed to set the implementing guidelines for the agreement.
Last week, China also forged a deal with Thailand for a direct currency swap worth $11 billion in a move to promote the use of the yuan in the 10-nation Association of Southeast Asian Nations (Asean).