Nothing personal - just business

A new package of financial agreements between Japan and China is suprizing in two ways:

1. There is an argument to be made against the possibility that the Chinese yuan will supplant anytime soon the US dollar as the principal international currency - the main ones are the political uncertainty resulting from the nature of the Chinese political system. However, the agreement shows that neither yuan nor yen need to become the major reserve currency in order to make the dollar less relevant:
"The agreements include a plan for a Japanese government-backed entity to sell yuan-denominated bonds in China, a boost to Beijing's campaign to deepen its domestic capital markets. Other measures are designed to make it easier for companies to convert the Chinese and Japanese currencies directly into the other, without requiring an intermediate conversion into dollars, the current common practice. About 60% of all Japan-China trade is currently settled in American dollars, according to a Japanese government official who briefed reporters on the agreements."

2. It is remarkable that Japan is willing to overlook its political disagreements with and the military danger posed by China for the sake of business. This may be just another indication that the traditional Japanese reliance on the military American protection is diminishing - it sees more security in having better relations with its neighbors:

"Still, the accords were striking, given recent tensions between China and Japan, including a prolonged diplomatic standoff just over a year ago in a territorial dispute, and hawkish comments by Mr. Noda and aides earlier this year about their concerns of a Chinese military threat. While China has reached agreements with other countries to encourage investment in its bond market and to encourage convertibility from the yuan into other currencies, this appears to be the most comprehensive such bilateral package. The moves suggest the two leaders may now see the need to downplay political differences and focus on reinforcing their economies, particularly at a time when Europe's debt turmoil and flagging global growth threaten Asian growth."