Japan and China to start direct currency trading on Friday

[Dinar_o'saurs]

China overtook Japan to become the world's second-largest economy in 2010 AFP TOKYO —

Japan and China will start direct currency trading this week, Tokyo said Tuesday, the first time Beijing has let a major unit other than the dollar swap with the yuan.

The move, which will scrap the greenback as an intermediary unit, comes as China introduces measures as part of a long-term goal of internationalizing its currency to rival the dollar.

The two-way trade will also be allowed to move in a wider range than the narrow band at which the dollar and yuan change hands, Dow Jones Newswires and the Nikkei business daily reported.

China will set a daily rate based on dealer quotes with trade allowed to move within a 3% band above or below that rate, the reports said, compared with a 1% band fixed to yuan-dollar trading.

The Chinese central bank earlier Tuesday introduced a rate of 7.9480 yuan for every 100 yen, Dow Jones said.

However, there will be no fixed rates in Tokyo trade with the currencies trading freely, according to the same media reports which provided no further details.

The yen does trade freely against other major currencies on global foreign-exchange markets, including the greenback, with the dollar buying 79.50 yen in Asian afternoon trade on Tuesday.

“From June 1, the yen-yuan exchange rate will be constantly indicated in both markets, facilitating full-fledged direct exchange trading,” Finance Minister Jun Azumi told a regular press briefing.

By not using the dollar as an intermediate currency “we can lower transaction costs and reduce settlement risks at financial institutions as well as making both nations’ currencies more useful”, he added.

The announcement comes as China introduces measures as part of a long-term goal of internationalizing the yuan to rival the dollar as the world’s benchmark currency.

Beijing’s tightly managed currency policy has triggered huge trade deficits in the United States, which accuses China of artificially undervaluing the yuan to boost exports, and has been a long-running source of friction between the world’s two largest economies.

On Tuesday, Beijing described yuan-yen trade as an “important step” in “strengthening cooperation between China and Japan in developing financial markets and mutually promoting direct trading between the two currencies based on market principle.”

China overtook Japan to become the world’s second-largest economy in 2010, and the neighbors are forging closer business ties despite frequent diplomatic spats over territorial claims and lingering historical animosities.

China is Japan’s largest trading partner, but about 60% of their mutual trade is denominated in U.S. dollars.

In March, Japan said it had won approval from Beijing to buy Chinese government bonds for the first time—Beijing does not allow investors to freely purchase its debt, requiring official approval instead.

Tokyo said it got the green light to buy Chinese government bond issues worth about 65 billion yuan ($10.25 billion), a relatively small amount that was seen as largely symbolic.

The economic powerhouses have also agreed to promote the use of their currencies in bilateral transactions—such as yuan-denominated foreign direct investment by Japanese companies in China—to reduce foreign exchange risks.

The yen, meanwhile, hit historic highs against the dollar last year, denting exporters whose products become less competitive overseas when the currency strengthens.

Japanese finance officials have vowed to step into foreign-exchange markets again to tame the value of the unit, which is increasingly seen as a safe-haven currency as the euro takes a hit owing to worries about the debt-hit eurozone.

[carlos in san diego]

Dinar'osauraus...Thanks for the news! I think many of us were expecting this to happen. It was only a matter of time. This means that Japan has joined the chorus of Bric nations that have abandoned the US dollar as the world reserve currency.

The way I understand how it worked before was that any nation that wanted to buy something from another country, had to purchase US dollars on the open market and effect the exchange with those dollars. This status that was enjoyed by the US dollar, as world reserve currency was probably partially responsable for creating an artificial demand for the dollar that would not otherwise have existed. This demand helped to maintain the value of the dollar higher than it would have been otherwise given the fact that our nation has been de-industrialized by the Elite in an effort to maximize their profits, through what they are calling "globalization" This is basically a euphamism, like many that they use, that means...we are taking your work away and sending it to be done by someone who works cheaper, and does not need benefits.

The list of nations that refuse to deal in US dollars has grown during the last six or so months to culminate in this last round between Japan and China. To me, this is a significant move, especially since we are talking about what used to be our second and third largest trading partners in the world, beside Europe. It seems the dollar continues under attack from all sides, underatndably so, considering the reason...The Bric nations said that they were tired of trading their products for a dollar that continued to loose value. Although I think they are not telling the whole story and what they want to do is to break the dollar and bring down the unscrupulous Banksters that run our government.

Personally, I wish them all the luck in the world. Our country will suffer from the outcome of the collapse of the dollar, but, their is a good chance we will rid ourselves of the Banksters once and for all! The long term effects will outway the interim effects. Carlos

[Sparta]

"Personally, I wish them all the luck in the world. Our country will suffer from the outcome of the collapse of the dollar, but, their is a good chance we will rid ourselves of the Banksters once and for all! The long term effects will outway the interim effects." Carlos

Carlos, I could not have said it better. Sad to say, but the dollar had become the FRS (banksters') fraud to control everything. Other people are starting to STAND UP and say "enough now!" Good for the US, or not good for the US, it was inevitable, and this is just the start of things ominous to come.

[daniel c]

Logically speaking what is the worth of a country's currency that can keep on (QE ) putting some ink on paper and keep producing tonnes of it.