Chinese Yuan and the Japanese Yen.. Direct Trades

The?Chinese currency?closed up against the dollar on today after hitting an all-time high, guided by a stronger mid-point by the?People?s Bank of China, and looks set for an over-4-per cent appreciation for 2011, traders said.? The Yuan is expected to remain stable or rise slightly in the last week of the year to close 2011 near 6.30 versus the dollar, in line with market expectations.

The currency is likely to continue to appreciate next year as China continues to post big trade surpluses despite a slowdown in exports and amid pressure from the United States to let the Yuan rise to balance bilateral trade, traders said.

The Yuan has appreciated 4.27 per cent so far this year, with most of the gain being recorded in the first 10 months of the year as China tries to rebalance trade and use the currency to help fight high inflation.

While the government has recently halted Yuan appreciation amid slowing exports, it also seems to be wary of a weaker Yuan that may lead to capital outflows.

Some overseas investors appear to have been shorting the Yuan in recent months amid signs that China?s growth is slowing under the double weight of a global slowdown and the country?s monetary tightening policy in place since October last year.

In an unexpected announcement ?Japan?and China will promote direct trading of the Yen and Yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government reported today

Japan will purchase Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions, the Japanese government said encouraging direct yen- Yuan settlement should reduce currency risks and trading costs.

China is Japan?s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier. The pacts between the world?s second- and third-largest economies mirror attempts by fund managers to diversify as the two-year-old European debt crisis keeps global financial markets volatile.

Given the huge size of the trade volume between Asia?s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations.

Source: http://www.findata.co.nz/News/13939943/Chinese_Yuan_and_the_Japanese_Yen_Direct_Trades.htm

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