Japan to China start direct trading of yen and yuan

05/31/2012
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TOKYO (majirox news) — China and Japan are planning to start direct trading of their currencies in June to help promote trade, financial investment and a weaker yen.

It’s an important step for both countries whose total trade volume last year totaled 358 billion dollars, according to Japan’s Ministry of Finance. China is Japan’s largest trading partner. It follows an agreement between both countries, which they signed in December 2011, when Japanese Prime Minister Yoshihiko Noda visited China.

“This is a big deal because the Chinese government and Japanese government have agreed to open the market and trade directly without using the US dollar for the first time,” said Masakazu Sato, a foreign exchange adviser at foreign exchange margin company Gaitameonline Co. “The Tokyo market, among the foreign exchange markets is a little slow. Although it is the third largest market in the world, the Japanese government wants it to become more active and bigger, so they opened the market with the yuan.”

Additionally, he said, the yen is too strong for Japanese exporters, and many businesses want the yen to be weaker, like 80 or 85 against the US dollar.

However, Sato warned that there could be problems caused by the currency fluctuation and speculation.

“The risk for the Chinese government is that because the yuan is controlled by the Chinese government, it can fluctuate any day, and if they decide to put the freed yen in the market the movement could be bigger than they had expected,” Sato said.

Many of Japanese big banks, including the Bank of Tokyo Mitsubishi UFJ and the Bank of China, will start direct trading in Tokyo and Shanghai, and set the exchange rates themselves.

Who knows, this might be an opportunity for Japanese investors to cash in on the strong yen, according to Sato.

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