Japanese and Chinese central banks to start full talks on new currency swap pact

The Bank of Japan and the People’s Bank of China will start full-fledged talks to conclude a new currency swap agreement, sources say.

The Japanese and Chinese central banks, Bank of Japan (BOJ)  and The People’s Bank of China (PBOC), are expected to look mainly at a ¥3 trillion plan to swap yen for yuan and vice versa, the sources said on Wednesday.

The two countries are moving to strengthen financial cooperation on the back of the current momentum for improving bilateral ties, with Prime Minister Shinzo Abe and Chinese Premier Li Keqiang slated to hold a summit in Tokyo next Wednesday.

Li and Abe are also expected to agree to other measures, such as establishing a framework for Japanese financial institutions to invest in yuan-denominated Chinese stocks and bonds and improving the convenience of yuan settlements on the Tokyo market.

Reopening the bilateral currency swap line would allow Japanese companies, for example, to procure yuan from the BOJ during a financial crisis when it may be difficult to do so otherwise. This will encourage Japanese institutional investors to purchase yuan-denominated securities by reducing liquidity concerns about the Chinese currency.

The People’s Bank of China and the Bank of Japan will begin negotiating the details after the meeting.

China and Japan signed a currency swap agreement in 2002, which expired in 2013, but was not renewed due to diplomatic problems including the Diaoyu Islands issue. This is caused partly by Japan’s effective nationalization of the Senkaku Islands in the East China Sea, which China claims as Diaoyu and Taiwan as Tiaoyutai.

Despite the bumpy relations, the Bank of Japan (BOJ) and the The People’s Bank of China (PBOC) continued behind-the-scenes talks on a new currency swap deal. They aim to accelerate the negotiations this year, the 40th anniversary of the conclusion of the Japan-China peace and friendship treaty.

Source Reference: https://www.yicaiglobal.com/news/china-japan-plan-renew-currency-swap-agreement-after-li-abe-summit ; https://www.japantimes.co.jp/news/2018/05/03/business/japanese-chinese-central-banks-start-full-talks-new-currency-swap-pact/#.Wx8hs9UzaUk ; https://asia.nikkei.com/Politics/International-Relations/China-and-Japan-to-revive-currency-swap-line-as-relations-thaw

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