- Academy
of Business Studies News Service -
New Delhi 26.12.2011: Japan and China will promote direct trading of
yen and yuan without using dollars and will encourage
the development of a market for companies involved in the exchanges, the
Japanese government said.
Japan will also apply to buy Chinese bonds next
year, allowing the investment of renminbi that leaves
China during the transactions, the Japanese government said in a statement
after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing on 24 December. Encouraging direct yen-yuan settlement should reduce currency risks and trading
costs, Japan’s government said.
China is Japan’s biggest trading partner with 26.5
trillion yen ($340 billion) in two-way transactions last year, from 9.2
trillion yen a decade earlier. The pacts between the world’s second- and
third-largest economies mirror attempts by fund managers to diversify as the
two-year-old European debt crisis keeps global financial markets volatile.
China also announced a 70 billion yuan ($11 billion) currency swap agreement with Thailand
last week as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asia Nations and
establish free trade zones. Central banks from Thailand to Nigeria plan to
start buying yuan assets as slowing global growth has
capped interest rates in the U.S. and Europe.
The yuan traded in Hong
Kong’s offshore market gained 0.5 percent offshore
last week and touched 6.3324 per dollar, the strongest level since trading
started in July 2010. Its discount to the
exchange rate in Shanghai narrowed to 0.1 percent,
from a record 1.9 percent on Sept. 23.
The yuan gained 0.05 percent in Shanghai to 6.3330 per dollar and was little
changed at 6.3450 in Hong Kong. It strengthened 4.3 percent
this year, the best-performing Asian currency excluding the yen. The currency
is allowed to trade 0.5 percent on either side of
that rate. The yuan is a denomination of the renminbi.
Japan exported 10.8 trillion yen to China in the
year through November, and imported 12 trillion yen, according to Ministry of
Finance data. The deficit with China widened to 1.2 trillion yen, from 418
billion yen in January-to-November 2010. About 60 percent
of the trade transactions are settled in dollars, according to Japan’s Finance
Ministry.
Finance Minister Jun Azumi
said Dec. 20 buying of Chinese bonds would help reveal more information about
financial markets in China. Noda said in September 2010, when he was finance minister, that Japan should be able to invest in China given
that its neighbor buys Japanese debt. Japan holds
$1.3 trillion of foreign-currency reserves, the
world’s second largest after China’s $3.2 trillion.
Investing in Chinese debt has become easier for
central banks as issuance of yuan-denominated bonds
in Hong Kong more than tripled to 112 billion yuan
($18 billion) this year and institutions were granted quotas to invest onshore.
Japan will start to buy “a small amount” of China’s bonds, a Japanese
government official said on condition of anonymity because of the ministry’s
policy, without elaborating.
China sold the second-biggest net amount of Japanese
debt on record in October as the yen headed for a postwar
high against the dollar and benchmark yields approached their lowest levels in
a year. It cut Japanese debt by 853 billion yen, Japan’s Ministry of Finance
said on Dec. 8.
Separately, the Japan Bank for International
Cooperation, JGC Corp., Mizuho Corporate Bank Ltd., the Export-Import Bank of China
and other Chinese companies will establish a $154 million fund to invest in
environment-related businesses such as recycling and energy, the Japanese
government said.