Yuan-yen direct trading 'a win-win game'

TOKYO - The direct trading of the Chinese yuan and Japanese yen that began from June 1 in Tokyo and Shanghai is "definitely a win-win game for both sides," according to a senior economist of the Asian Development Bank Institute.

The direct yuan-yen trading could reduce the transaction cost and exchange risk in bilateral trading and investment, and Japanese and Chinese companies involved will benefit from the new system, said economist Xing Yuqing in an exclusive interview with Xinhua.

"However, the most important implication of the direct trading is that the Japanese yen and Chinese yuan will be utilized more in the future. I think this is the major objective for the two governments to work together to promote bilateral direct trading," Xing said.

Statistics of the Asian Development Bank Institute show that only 0.3 percent of the Chinese commodities exported Japan and 1.7 percent of goods China bought from Japan were settled in yuan in 2011, while trade deals settled in yen are slightly higher, as the institute's 2009 figures show that 18 percent of China's exports to Japan were settled in yen.

"With the direct yuan-yen trading, the role of the US dollar in bilateral trading between China and Japan would become less and less important. This might signify a gradual departure of the two countries from the dollar," he said.

The US dollar has long been the vehicle currency for bilateral trade and investment between China and Japan, and volatility of its exchange rate is the major concern for everyone involved in trade between the two countries.

To Xing, the direct trading agreement is also a major step for the internationalization of the Chinese currency. "Before the Chinese yuan becomes an international currency, it should be a regional currency first."

Japan, the world's third largest economy and the second largest trading partner of China, is a perfect partner to promote the utilization of yuan, or renminbi, he said.

"That will build up a solid footing for renminbi on the way to be a regional currency and eventually become an international currency," he said. "In my opinion, the next natural step for Japan is to reach an agreement with China to set up a renminbi offshore market in Tokyo. Japan will benefit a lot from renminbi's internationalization."

The yuan-yen direct trading will also inject vitality into Tokyo's financial market, Xing said.

According to the economist, the Japanese yen has been an international currency for decades but its share is very low, so the internationalization of yen can be considered as a failure. The trading of the Chinese yuan, particularly yuan-denominated assets will provide new business opportunities for Japanese financial institutions in the post-crisis era.

From a long-term perspective, the yuan-yen direct trading will help both yuan and yen play a greater role in international trade and financing, and it may bring changes to the current international monetary system, Xing said.