(VOVworld) - Japan and China today begin direct bilateral trade of the yen and yuan. This not only simplifies trade and financial transactions between the countries but also has considerable impact on their political relations. Following this cooperation, the two countries are now more interdependent. VOV has more.

Japan’s Finance Minister Jun Azumi said on Tuesday that not using the dollar as an intermediate currency will help lower transaction costs and reduce settlement risks at financial institutions. The People’s Bank of China said that using yen and yuan in bilateral trade will strengthen financial cooperation between China and Japan. According to analysts, direct trading in yen and yuan, Chinese and Japanese companies will suffer from less foreign exchange risks. For China, this move is the specific step to realize its ambition to internationalize the yuan. Japanese companies will benefit by trading in yuan in other financial centers in London and Singapore where yuan trading systems will soon be established.

China is one of Japan’s largest trading partner, but about 60 percent of their mutual trade is denominated in US dollars. In the context of impacts of global economic crisis in 2008, slow development of the US economy and public debt crisis for which Japan and China’s exports were hard hit, the two countries realized the need to save costs in investment and reduce dependence on the US dollar. Last November, China and Japan signed a deal on direct exchange of their currencies which officially took effect  on June 1st in Tokyo and Shanghai markets.

The current shortcomings of the international financial system dependent on the US dollar triggering the need to restructure the system. Yuan is considered to be the likely candidate to compete with the USD dollar in international payment and reserves. Analysts forecast that in the mid-term, yuan will be accepted in the international financial market and is likely to take the key role in the global market in the long term. China has also signed currency swap agreements with 16 central banks in the world including member banks of BRIC states – Brazil, Russia, India and China. In late March of this year, the central banks of China and Australia signed a currency swap agreement with Australia. Standard Chartered Bank has recently announced it will open an offshore yuan trading center in London. A similar plan has been pushed up in Singapore. For China, direct currency trading will be the next step on the path to promote its currency and reduce dependence on US dollar and euro in the global market.

Beside economic benefits, direct trading between Tokyo and Beijing also has considerable impacts on political relations between the two countries. China is the fastest growing economy in the world and is likely to replace the US as the world’s most powerful economy in the future. Japan is also the second powerful economy in the world following fast economic growth in 60s and 70s. The country is also on the path to reinforce its political position in line with its economic growth in Asia Pacific and the world. The trend China and Japan are heading towards is to build mutual trust for economic benefits in the context of the current global economic crisis.