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Japan will seek to expand a $3 billion currency swap agreement with China to strengthen direct trading between the yen and yuan, the nation’s top currency official said.
“We’re aware of the need” to enhance the agreement signed in 2002, Takehiko Nakao, 56, vice finance minister for international affairs, said in an interview in Tokyo last week. “It’s encouraging to have such a measure as a last resort” to provide liquidity and promote trading, he said.
Japan hopes to make the agreement akin to the yen-dollar swap deal between the Bank of Japan (8301) and the U.S. Federal Reserve, he said. In other signs of increased cooperation with its largest trading partner, Japan and China started direct trading of the yen and yuan last month and Japan also plans to buy $10.3 billion in China’s sovereign bonds.
The swap agreement enables the BOJ and the Chinese central bank to provide yen and yuan liquidity to each other should a shortage in their currencies occur.
The trading arrangement started in June has helped daily transaction volumes in Tokyo swell by 10 times to 10 billion yen ($125 million), which will help make Tokyo an offshore market for Chinese currency trading, Nakao said.
Japan’s planned purchases of Chinese sovereign bonds “don’t necessarily mean that we would try to diversify our foreign-currency reserves” away from the U.S. dollar, Nakao said. “The dollar is expected to remain a reserve currency and we maintain our trust in U.S. treasuries, which we consider an attractive asset.”
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