On June 1, new currency markets opened in Tokyo and Shanghai for direct trading between the Japanese yen and the Chinese yuan. The direct trading of the two currencies has been motivated largely by the instability of the main currencies such as the U.S. dollar and the euro.
With the introduction of the direct trading between the Japanese and Chinese currencies, the system that sets yen-yuan rates via their dollar values can be skipped, thus lowering transaction costs and reducing settlement risks. While the yen-yuan direct trading can be expected to help expand trade between Japan and China and have desirable effects on the Japanese and Chinese economies, the new scheme will not have an easy path ahead.
The reliability of the U.S. dollar, which played the role as the world's key currency after World War II, has declined in recent years as the U.S. economy's relative strength decreased. The euro, which helped form a new economic zone, also has faced difficulties due to the sovereign debt crises in Greece and other European countries. In the meantime, trade and economic relations between Japan and China have deepened.