Direct currency trading of the Chinese yuan against the Japanese yen started on Friday, the first time a major currency other than the US dollar was allowed to directly trade with the yuan.
On the first day of direct trading, the yen gained 393 basis points to 8.0686 yuan against 100 yen on Friday, following a gain of 689 basis points Thursday, a new high since February 14.
The rise in the central parity rate of the yuan against the yen corresponds to market expectations, as the direct trading of the two currencies means the central parity rate is determined by the prices offered by market dealers rather than relying on the US dollar as the intermediary, Zhang Lei, a macroeconomic analyst at Minsheng Bank, told the Global Times, adding that the direct trade is a move toward the market mechanism for the exchange rate.
The change in the exchange rate pricing mechanism will help improve China's foreign exchange market, Dai Shugeng, a professor of finance at Xiamen University, said during an interview with the Global Times on Friday.
"However, the fluctuation of the exchange rate is expected to increase in the future, with demand and supply playing a bigger role in determining the exchange rate, so the exchange risk is likely to rise at the same time," Dai said.
He also noted that as the value of China's currency has been undervalued for a long time and China's national strength continues to grow, the yuan will continue to appreciate against the yen in the long term.
Analysts believe that direct currency trading that can reduce exchange costs is expected to benefit trade enterprises and Chinese people traveling to or studying in Japan.
Up to $3 billion will be saved each year after the direct yuan-yen trading, Kyodo News reported.
The first group of banks has been approved as market makers in yuan-yen direct trading, including Bank of China, Bank of Tokyo-Mitsubishi UFJ and HSBC Bank (China) Co.