Direct yuan-yen trading to start
By Feng Jianmin |
May 30, 2012, Wednesday
|
Print Edition
Print Edition
China and Japan will launch direct yuan-yen trade in the Shanghai and Tokyo markets from Friday to facilitate trade and financial transactions between Asia's two biggest economies.
The yen will be the second foreign currency, after the US dollar, to be directly traded with the yuan. The move marks another step-up for the yuan in pursuing its globalization by making the Chinese currency's exchange rate more flexible.
From June 1, the yuan/yen rate will be set directly by the market rather than based on the yuan/dollar mid-point rate and the dollar/yen rate.
The new move follows an agreement between the two countries in December to promote direct trading of their currencies without the interim step of using dollars to set exchange rates.
The People's Bank of China said yesterday that it had authorized the move to help improve the foreign exchange market, promote Sino-Japanese cooperation and develop China's capital markets.
"Developing direct yuan/yen trading will help form the direct yuan/yen exchange rate and reduce the trading costs for economic entities," the central bank said in a statement.
"(It will also) promote the use of the yuan and the yen in bilateral trade and investment, as well as help strengthen financial cooperation between the two countries."
Japanese Finance Minister Jun Azumi announced the decision in Tokyo yesterday, stressing that the move could lower transaction costs and risks involved in settlements at financial institutions.
He also hoped increasing trade between yuan and yen could boost Tokyo's financial market.
Economists said the move would benefit companies in both countries as well as China's exchange rate mechanism in a broader sense.
Guo Tianyong, a professor at the Central University of Finance and Economics, said that fixing the yuan on the US dollar had, to some extent, made China's exchange rate system "rigid and distorted."
"The direct trade with the yen, and possible inclusion of the euro in the future, will make the yuan's exchange rate system more transparent," Guo said.
"It will lower companies' costs in exchanging foreign currencies, and will help internationalization of the yuan."
Lian Ping, a chief researcher at the Bank of Communications, said the move had many benefits but it could also make the yuan/yen rate more volatile.
Companies and banks should increase their risk management on exchange rates, he said.
China overtook Japan to become the world's second-largest economy in 2010 and is Japan's largest trading partner, but about 60 percent of their mutual trade is denominated in US dollars.
Only 0.3 percent of exports and 1.7 percent of imports from China to Japan were settled in yuan last year, Xinhua news agency said, citing the Asian Development Bank.
Economists estimate the move could save US$3 billion in annual costs tied to using the dollar in trade transactions.
But they also pointed out that the move had not included any opening up in China's capital account, which would limit its effect in increasing trade between the two currencies.
China has recently taken several steps to promote the yuan's use internationally.
Last month, the central bank announced it would allow the yuan to rise and fall by a slightly wider margin against the dollar in daily trading up to 1 percent each day from 0.5 percent previously.
Hong Kong's stock exchange operator also recently announced it plans to launch a futures contract denominated in yuan in another step toward internationalizing the yuan.
The contract, which is to be launched later this year, would give investors a way to hedge their exposure to the currency.
The yen will be the second foreign currency, after the US dollar, to be directly traded with the yuan. The move marks another step-up for the yuan in pursuing its globalization by making the Chinese currency's exchange rate more flexible.
From June 1, the yuan/yen rate will be set directly by the market rather than based on the yuan/dollar mid-point rate and the dollar/yen rate.
The new move follows an agreement between the two countries in December to promote direct trading of their currencies without the interim step of using dollars to set exchange rates.
The People's Bank of China said yesterday that it had authorized the move to help improve the foreign exchange market, promote Sino-Japanese cooperation and develop China's capital markets.
"Developing direct yuan/yen trading will help form the direct yuan/yen exchange rate and reduce the trading costs for economic entities," the central bank said in a statement.
"(It will also) promote the use of the yuan and the yen in bilateral trade and investment, as well as help strengthen financial cooperation between the two countries."
Japanese Finance Minister Jun Azumi announced the decision in Tokyo yesterday, stressing that the move could lower transaction costs and risks involved in settlements at financial institutions.
He also hoped increasing trade between yuan and yen could boost Tokyo's financial market.
Economists said the move would benefit companies in both countries as well as China's exchange rate mechanism in a broader sense.
Guo Tianyong, a professor at the Central University of Finance and Economics, said that fixing the yuan on the US dollar had, to some extent, made China's exchange rate system "rigid and distorted."
"The direct trade with the yen, and possible inclusion of the euro in the future, will make the yuan's exchange rate system more transparent," Guo said.
"It will lower companies' costs in exchanging foreign currencies, and will help internationalization of the yuan."
Lian Ping, a chief researcher at the Bank of Communications, said the move had many benefits but it could also make the yuan/yen rate more volatile.
Companies and banks should increase their risk management on exchange rates, he said.
China overtook Japan to become the world's second-largest economy in 2010 and is Japan's largest trading partner, but about 60 percent of their mutual trade is denominated in US dollars.
Only 0.3 percent of exports and 1.7 percent of imports from China to Japan were settled in yuan last year, Xinhua news agency said, citing the Asian Development Bank.
Economists estimate the move could save US$3 billion in annual costs tied to using the dollar in trade transactions.
But they also pointed out that the move had not included any opening up in China's capital account, which would limit its effect in increasing trade between the two currencies.
China has recently taken several steps to promote the yuan's use internationally.
Last month, the central bank announced it would allow the yuan to rise and fall by a slightly wider margin against the dollar in daily trading up to 1 percent each day from 0.5 percent previously.
Hong Kong's stock exchange operator also recently announced it plans to launch a futures contract denominated in yuan in another step toward internationalizing the yuan.
The contract, which is to be launched later this year, would give investors a way to hedge their exposure to the currency.
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