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As part of the Japanese prime minister's recent trip to China, which ended yesterday, the two countries signed a new currency agreement. The agreement will make it possible for their currencies to be traded directly for the first time. The agreement could signal a significant tightening of economic relations for the world's second and third largest economies.
Japanese Prime Minister Yoshihiko Noda was in Beijing for bilateral talks with the Chinese leader, Wen Jiabao, when they announced a plan to begin trading their currencies directly. Up until now, trade between yuan and yen had to be first converted into US dollars—a process that added to the cost of doing business.
The direct currency exchange will grease an already lucrative bilateral trade between the world's second and third largest economies. The two leaders also said that the Japan Bank for International Cooperation will be allowed to issue bonds in yuan—that's the first time a foreign bank will be allowed to do so.
China is currently Japan's largest trading partner, with annual trade worth roughly $340-billion. These new economic agreements between the Chinese regime and Japan come amid the backdrop of increased US involvement in the region. The United States has courted Tokyo to join the Trans-Pacific Partnership Agreement, a trade pact that includes regional powers like Australia and Vietnam, but excludes China.