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Will China and Japan resume currency swap line?

2018/5/9 10:01:41   source:Xinhua

Chinese Premier Li Keqiang heads to Japan on Wednesday to meet Japanese Prime Minister Shinzo Abe. The Japanese media held an optimistic tone about the meeting, stating the two sides are moving to revive bilateral currency swap line, which is largely seen as a signal of thawing China-Japan relations.

Li will arrive in Japan Wednesday evening, after an official visit to Indonesia starting from Sunday. He’ll be there for the 7th China-Japan-ROK leaders' meeting. His Japan trip is reported to strengthen cooperation in the financial sector and improve diplomatic relations.

What’s a currency swap line?

It is an agreement between two central banks to exchange currencies, which makes it easier for commercial banks and companies in each relevant country to get hold of the underlying currencies.

For example, a currency swap line between China and Japan would allow Japanese central bank to get money from the Chinese central bank and then provide it to domestic companies during a financial crisis when it may be difficult to do so otherwise, and vice versa.

In other words, it is more of a precautions measure during tough times to ensure liquidity keeps flowing around the markets.

What happened to the former China-Japan currency swap line?

China and Japan, Asia’s two largest economies, launched their bilateral currency swap line in 2002. However, the agreement has not been renewed since 2013, as relationship hit rock bottom over the Diaoyu Island in the East China Sea.

Things seem to turn around now.

Ahead of Li’s visit, Japan’s Nikkei Asian Review and Japan Today both reported that the People's Bank of China and the Bank of Japan have been negotiating the details of currency swap agreement renewal, which is expected to be announced after the Li-Abe meeting.

Nikkei said the two sides were also expected to agree in other measures, such as establishing a framework for Japanese financial institutions to invest in yuan-denominated Chinese stocks and bonds and improving the convenience of yuan settlements on the Tokyo market.

China-Japan relations back on track

This year marks the 40th anniversary of the signing of the China-Japan Treaty of Peace and Friendship. Li, also scheduled to meet with Japanese Emperor Akihito other than Abe during the visit, is expected to urge Tokyo to re-honor the spirit of the treaty and match words with deeds.

Vice foreign minister Kong Xuanyou said during a press conference that with the joint efforts of both sides, Sino-Japan relations have seen improvements, and exchanges and cooperation in various fields have steadily developed.

He said Li’s visit would inject new impetus into the improvement of bilateral ties, and provide a clear direction for their future development.

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