Japan and China will begin direct yen- yuan trading on June 1, Japanese Finance Minister Jun Azumi said Tuesday, abandoning the existing system that determines yen-yuan rates via their U.S.dollar values.

The move is broadly seen as a way to boost trade and investment between the world's second- and third- largest economies, and as part of measures China took to internationalize its currency.

The direct currency trading will be dealt at the Tokyo and Shanghai markets, Azumi told a press conference in Tokyo.

However, the trade in the two markets will be slightly different.

China will set a daily rate according to dealer quotes allowing trade to move within a 3.0 percent band above or below the line, said Japanese media, compared with a 1.0 percent band fixed to yuan-dollar trading.

The Chinese central bank Tuesday introduced a rate of 7.9480 yuan for every 100 yen, according to media reports.

But there will be no fixed rates in Tokyo trade. The two currencies would trade freely in Tokyo markets.

"The direct trading will lower transaction costs and reduce settlement risks of the financial institutions and facilitate the using of both the Japanese and Chinese currencies," said Azumi.

The yen-yuan direct trading will also inject vitality into Tokyo's financial market, he added.

It is the first time China has allowed a major currency other than the U.S.dollar to trade directly with the yuan, Japanese media reported.

China overtook Japan to become the world's second-largest economy in 2010, and the two countries are working actively together to forge closer business ties.

China is Japan's largest trading partner, but large portion of their mutual trades are settled by the U.S.dollars.

According to statistics of the Asian Development Bank, only 0.3 percent of exports and 1.7 percent of imports from China to Japan were settled in yuan in 2011. Mutual trades settled in yen are slightly higher, take the year 2009 for example, 18 percent of total exports from China to Japan were settled in yen.

"The direct yen-yuan trading will reduce foreign exchange risks in bilateral transactions, and will bring more growing potentials for both China and Japan's financial institutions and trading partners, "said Doctor Xing Yuqing, economist from Asian Development Bank Institute.

"It is also an important step for yuan's internationalization, and it will also promote Asian currencies' entire standing in the global economy," Xing said.

(Xinhua News Agency May 29, 2012)