May 29 - Japan and China will start trading their currencies directly in Tokyo and Shanghai from June 1 to shore up trade and financial ties between Asia's two biggest economies.
The move to begin direct trading of its currency in Tokyo suggests China is looking to speed up efforts to raise the yuan's profile overseas. The step eliminates the use of the dollar, and follows an agreement struck by Tokyo and Beijing last year to buy Chinese government debt and forge a free trade agreement between China, Japan and South Korea. Jefferies Naomi Fink says the immediate impact will be limited. (SOUNDBITE) (English) HEAD OF JAPAN STRATEGY AT JEFFERIES JAPAN, NAOMI FINK, SAYING: "This measure is small compared to something like an FTA (Free Trade Agreement). If incorporated, if it actually leads to something like a greater economic partnership, then it will only provide additional liquidity, but on its own, it's probably not enough to change the current structure of the market." Japanese Finance Minister Jun Azumi stressed the cost benefits of the move. (SOUNDBITE) (Japanese) JAPANESE FINANCE MINISTER JUN AZUMI SAYING: "By conducting transactions without using a third country's currency, it will bring merits of reducing transaction costs and lowering risks involved in settlements at financial institutions." The People's Bank of China also noted benefits for mutual trade, but tied the move to boosting the use of the yuan as a settlement currency. The yen-yuan exchange rate is normally calculated based on their respective rates against the dollar, so the move is expected to narrow trading spreads, lower transaction costs and allow more trade deals to be settled directly. Arnold Gay, Reuters