Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao agreed Sunday to step up cooperation in international finance, with Japan to begin purchases of Chinese government bonds and both to encourage the use of their own currencies instead of the dollar when settling bilateral trades, officials said.
The two leaders also decided during their talks in Beijing to set up a working group composed of officials from both countries to discuss private-sector requests on deregulation and other issues.
Chinese authorities control capital inflows and allow only designated countries to purchase limited amounts of their government bonds. Japan is now expected to join that process.
The amount of Chinese bonds Tokyo will purchase is unknown. A senior Japanese official only described the amount as "small."
The official also denied that the move reflected a desire by Tokyo to diversify how it invests its foreign-exchange reserves, a large part of which has been used to buy dollar- and euro-denominated assets.
Japan hopes that buying Chinese government bonds will lead the countries to exchange crucial economic information, the official added. China has recently expanded its buying of Japanese government bonds.
Some 60 percent of bilateral trades have been settled using the dollar, which has required Japanese and Chinese companies to first exchange yen or yuan into the U.S. currency. Encouraging settlements in their currencies would thus enable exporters and importers to cut foreign-exchange costs and risks.