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Japan Bank RMB Settlement Deal May Presage Wider BRI Co-operation

Warming of Beijing-Tokyo relations seen as leading to Japan's biggest bank being cleared to handle RMB transactions.

Photo: MUFG: Japan’s biggest bank joins JP Morgan as non-mainland RMB settlement institution.
MUFG: Japan's biggest bank joins JP Morgan as non-mainland RMB settlement institution.
Photo: MUFG: Japan’s biggest bank joins JP Morgan as non-mainland RMB settlement institution.
MUFG: Japan's biggest bank joins JP Morgan as non-mainland RMB settlement institution.

Following the news that the MUFG Bank, the largest banking group in Japan, has been approved to settle transactions in RMB, some observers have seen this as a clear sign of a warming in relations between Tokyo and Beijing, as well as an indication of greater co-operation to come. In particular, it has been interpreted in certain quarters that Japan might be on the verge of signing up as a partner to the Belt and Road Initiative (BRI), China's ambitious global infrastructure development and trade facilitation programme.

The move is seen as particularly significant as not only is MUFG the first Japanese financial institution to be approved as an RMB clearing bank by the Chinese monetary authorities, but it is only the second non-mainland-linked bank to be granted such an entitlement. The only other non-Chinese institution to enjoy such a privilege is JP Morgan, with the New York-headquartered investment bank having received the go-ahead in February last year, a move widely interpreted as part of a Beijing bid to internationalise the use of the Chinese currency amid hopes that it may one day rival the US dollar in terms of global ubiquity.

The move to extend a similar right to MUFG came in the wake of the late June Osaka G20 Summit, during which Xi Jinping, the Chinese President, and Shinzo Abe, the Japanese Prime Minister, held a number of one-on-one meetings on the sidelines of the event proper. It is believed that it was these sessions that paved the way for this new arrangement.

In terms of significance, the deal means that Japanese businesses can now settle any RMB-denominated transactions via MUFG without having to route them through a mainland-located financial institution. It also means that the Japanese bank will be entitled to source RMB directly from its China-based branches whenever a shortage of the currency may occur in global financial markets.

As to any wider significance, the attention of many is now focused on whether this new arrangement with MUFG will presage increased investment in China by Japanese businesses. In particular, it could mark the beginning of greater economic co-operation between the two nations, a development long seen as unlikely due to the long history of distrust and tension between these two Asian superpowers.

While the BRI would provide the obvious framework for any such co-operation, Japan has so far held off from participating in or even formally endorsing the programme, which has long held Xi's personal imprimatur. Last year, though, in an earlier indication of a possible change of tack, the two countries announced plans to push ahead with a new public-private committee that would co-ordinate joint overseas infrastructure projects – notably a major Thai rail link development programme.

For both countries, further progress on such initially coy overtures would have clear benefits. For Japan, greater economic co-operation with its near neighbour could have marked appeal, notably in the tourism sector, with some 8.4 million visitors from China last year – a huge figure but only a tiny proportion of the 149.7 million outbound mainland-sourced tourists recorded last year.

In China, a more conspicuous alliance with its old adversary could help bolster the prospects of the BRI, while undermining suggestions that the programme was more about Beijing's soft power ambitions and inclinations to build its sphere of influence through creating debt ties with many of the region's poorer economies.

Akio Goto, Tokyo Office

Content provided by Picture: HKTDC Research
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