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Yen-renminbi trade a positive for Asia: Nomura

03 Jan 2012

The recent collaboration between China and Japan to promote the use of renminbi in trade and financial transactions could impact future trade invoicing in the region, believes the Japanese bank.

The set of policies announced on December 25 by the People’s Bank of China (PBoC) between the two largest economies in Asia is a step forward to promoting the internationalisation of the Chinese currency.

“Given the size of Japan and China relative to the rest of East Asia, the collaborative effort to use renminbi and yen for bilateral trade has significant potential to make a difference in trade invoicing in the region,” said Zhiwei Zhang, a Hong Kong-based chief China economist at Nomura International in a research report on December 30.

“If the two economies work together to promote trade settlement in renminbi, it could help to promote more renminbi-based trade settlement for the other countries in the region as well.”

Japan will also become the first developed economy to hold renminbi bonds as reserve assets. According to the New York Times, the size of purchase is US$10 billion, which is a fairly small compared to the nation’s total international reserves of US$1,304.8 billion as at November 2011.

But Nomura believes that this could mark the start of the process towards the acceptance of the renminbi as a reserve currency for developed economies.

“Japan’s decision to purchase renminbi bonds as reserves is significant, as this is the first time renminbi assets will make up part of the reserves of a G7 economy,” added Zhang.

Business in Tokyo is expected to grow as Japanese firms are allowed to issue renminbi-denominated bonds locally and internationally. Japan’s Bank for International Cooperation will issue these bonds in the Chinese market on a trial basis.

China is Japan’s biggest trading partner with ¥26.5 trillion (US$340 billion) in two-way transactions last year, from ¥9.2 trillion yen a decade earlier.

03 Jan 2012