Tension between China and Japan over the East China Sea has not stopped them from developing trade between the two countries. The Asia-Pacific Journal reports that Japan and China started direct trading of their currencies on June 1. The new policy, allowing direct yen-yuan trades, aims to bypass the US dollar, avoiding currency conversion fees and long-term losses from dollar depreciation.
Up until June 1, Japanese and Chinese firms had paid currency conversion fees twice in trade and other bank transactions. Japanese companies first had to convert the yen into the dollar, then they exchanged the dollar for Chinese currency. For Chinese firms, it was vice versa. With this removal of the interim step by skipping the dollar in transactions, many expect cost reductions.
The agreement marks a step in the Renminbi’s internationalization, with which “it will become more and more difficult for China to control the value of the yuan,” said Karakama Daisuke, Market economist at Mizuho Corporate Bank. Tokyo therefore hopes to benefit from the correction of China’s alleged currency manipulation. From the Asia-Pacific Journal article:
For Tokyo, direct trading confers a favor of incorporating China’s dynamic growth more effectively and economically. The possible future correction of China’s still artificially undervalued yuan may also result in a weaker yen, boosting the competitiveness of Japanese exporters such as Toyota and Sony in the long term.
Read more about the yuan’s exchange rate on China Digital Times.