China and Japan have started direct currency trading as Beijing marked another stage on its journey to foster the yuan’s use internationally.
The two countries are important trading partners, but about 60 per cent of their mutual trade is denominated in US dollars. They agreed on Friday that Japan will add yuan to its foreign-exchange reserves.
Last December, the two countries agreed to a series of deals to promote the use of the yuan in trade and investment in order to reduce the use of US dollar in Asia, the world’s fastest growing region.
The market participants can now exchange Japanese yen for Chinese yuan without having to use the US dollar as an intermediary currency, making foreign trade settlement more convenient and cutting transaction costs.
Chinese state media have reported that the foreign exchange launch will save the country about $3bn in annual costs tied to using the dollar in trade transactions.
On the first day of trading under the new practice, dealers said the yuan weakened against the yen due to the Japanese currency’s overnight gains against the dollar.