China and Japan started direct currency trading on Friday, June 1 as Beijing marked another stage on its journey to foster the yuan's use internationally in line with its growing economic clout, AFP reported.
Market participants can now swap Japanese yen for Chinese yuan without having to use the U.S. dollar as an intermediary currency, making foreign trade settlement more convenient and cutting transaction costs.
The move comes as China, the world's second-largest economy just ahead of Japan, gradually moves to make the yuan freely convertible with an eye towards rivalling the mighty dollar, analysts said.
China maintains a tight grip on its currency, which is not convertible on the capital account, over fears that speculative flows could hurt its economy. That policy has long fostered trade tensions with the United States.
British banking giant HSBC, one of the newly appointed market makers in China, said the launch of direct trading will help build a benchmark for non-dollar transactions.
The Chinese currency will be allowed to fluctuate within a 3.0 percent band above or below a daily mid-point, according to media reports. China has not publicly announced the trading band.
China overtook Japan to become the world's second-largest economy in 2010, and the neighbours are forging closer business ties despite frequent diplomatic spats over territorial claims and lingering historical animosities.
China is Japan's largest trading partner, but about 60 percent of their mutual trade is denominated in U.S. dollars.
The forex launch will save about $3.0 billion in annual costs tied to using the dollar in trade transactions, Chinese state media have reported.
