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Japan, China to resume currency swap agreement

In this Sept. 12, 2018, file photo released by China's Xinhua News Agency, Chinese President Xi Jinping, right, shakes hands with Japanese Prime Minister Shinzo Abe during a meeting on the sidelines of the Eastern Economic Forum in Vladivostok, Russia. Abe is to travel to China later in October, 2018 for his first formal visit in seven years, in a further sign of improving relations between the regional rivals. (Xie Huanchi/Xinhua via AP, File)

TOKYO -- The governments of Japan and China have decided to reintroduce a currency swap agreement for the Japanese yen and the Chinese yuan with a cap of around 3 trillion yen, according to people familiar with the decision.

The previous Japan-China currency swap agreement, signed in 2002, expired in September 2013 after Tokyo-Beijing ties turned frosty due to Japan's nationalization of the Senkaku Islands in the East China Sea, which China also claims.

The agreement will be finalized at a summit meeting between Prime Minister Shinzo Abe, who is visiting China from Oct. 25, and Chinese President Xi Jinping in Beijing on Oct. 26. This will be followed by an arrangement between the central banks of the two countries. Swaps are conducted to provide capital in each other's currency during a currency crisis or other severe shortage of currency for settlement.

The two countries, meanwhile, are not likely to strike a deal on the resumption of talks toward the joint development of gas fields in the East China Sea.

Starting talks to resume currency swaps was agreed upon by Prime Minister Abe and Chinese Prime Minister Li Keqiang in their summit meeting in Tokyo in May, and currency authorities of the two countries have been discussing swap amounts and other conditions.

The two sides are set to agree on a 10-fold increase in the swap ceiling from about the equivalent of $3 billion in the previous agreement, reflecting the expansion of trade and investment between Japan and China.

Purposes of swap agreements differ from country to country, including the stabilizing financial markets and curbing financial crises. As for the agreement with China, Japan foresees a situation in which Japanese companies will receive the Chinese yuan provided by the Chinese central bank via Japanese banks when system troubles prevent them from settling transactions with their Chinese cash holdings.

Resuming currency swaps was requested by many in the business community, as improving bilateral ties may push up investment in China by Japanese companies. An individual close to the Japanese government said the resumption "will be a tailwind for economic activities," adding that it will have a symbolic meaning of better ties between Tokyo and Beijing.

Other issues to be agreed upon during the Abe-Xi summit on Oct. 26 are likely to include the beginning of discussions on innovation and intellectual property. The two sides are making final adjustments on whether to relax import restrictions imposed by China on Japanese food products after the 2011 nuclear accident at the Tokyo Electric Power Co.'s Fukushima Daiichi Nuclear Power Station in the northeastern Japan prefecture of Fukushima.

Meanwhile, resumption of talks on the joint development of gas fields in the East China Sea faces high hurdles. The Japanese and Chinese premiers agreed in their May summit to aim to resume talks on the issue, but the joint project -- agreed on in 2008 -- faces criticism in China as an excessive compromise. The Japanese side also understands that resuming the negotiations is too risky for Beijing.

The upcoming summit between Abe and Xi, therefore, is likely to go only so far as to confirm the East China Sea should be a "peaceful, cooperative and friendly sea," as the confrontation between China and Japan over the Senkakus remains unresolved. The two sides intend to continue improving economic ties.

(Japanese original by Shinichi Akiyama, Political News Department)

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