India, Japan eye direct yen-rupee trade settlement to cut reliance on US dollar: Report
Japan's Prime Minister, Sanae Takaichi, is currently in New Delhi for a three-day visit
India and Japan Eye Direct Yen-Rupee Trade Settlement to Cut US Dollar Reliance
Theindiapostdaily.com – Japan’s Prime Minister, Sanae Takaichi, is currently in New Delhi for a three-day visit aimed at deepening economic ties with India. During the 16th India-Japan Annual Summit, leaders are reportedly set to finalize a framework for a direct yen-rupee trade settlement system, a move that could significantly reduce reliance on the US dollar. According to a Nikkei Asia report, this initiative is expected to be highlighted in the joint statement released after the summit, marking a pivotal step in bilateral financial cooperation.
Proposal to Simplify Cross-Border Trade
The proposed yen-rupee settlement system aims to streamline cross-border transactions by allowing Japanese entities to open accounts with Indian financial institutions. This would enable direct trade settlements between the two nations without the need for intermediation through the US dollar, potentially cutting transaction costs and processing times. The initiative is particularly significant for Japanese firms looking to expand their presence in India’s growing markets, as it offers a more efficient and stable currency mechanism.
“The two leaders will discuss the further strengthening of mutually complementary cooperation under the Japan-India Joint Vision for the Next Decade… in the areas of economic security, including energy, as well as economic growth through investment and innovation,” stated the Japanese Foreign Ministry.
This marks the first time currency cooperation has been formally included in a leaders’ joint statement between India and Japan. The plan builds on the 2025 Japan-India Joint Vision, which emphasized closer financial ties. Similar frameworks have already been implemented with Japan and Indonesia, where bilateral trade under yen-rupee settlements reached $7.7 billion in 2025, according to Nikkei. Tokyo is also considering a comparable model with Malaysia, signaling a broader regional strategy to diversify currency dependencies.
Strengthening Strategic Economic Bonds
India and Japan have maintained a Special Strategic and Global Partnership, with collaboration spanning trade, infrastructure, defense, and clean energy. Bilateral trade volume in fiscal year 2025/26 hit $27.5 billion, while Japanese investments in India totaled $3.2 billion between April and December 2025, per Reuters. The yen-rupee initiative is seen as a key component of this partnership, aiming to enhance economic resilience in a volatile global market.
Japan has been a major player in India’s infrastructure development, supporting projects like the Mumbai-Ahmedabad high-speed rail corridor. Additionally, Japanese companies have increased their stakes in Indian firms, such as a $1.6 billion investment in Yes Bank. The summit follows Prime Minister Narendra Modi’s August 2025 visit to Tokyo, where both nations announced a 10-trillion-yen investment target for India over the next decade, underscoring their commitment to long-term economic alignment.
With approximately 1,400 Japanese firms operating in India, nearly half of which are engaged in manufacturing, the yen-rupee settlement could further solidify their commercial presence. This initiative is expected to complement existing trade agreements and align with the Indo-Pacific strategy, positioning both nations to counterbalance global financial power shifts.
Experts suggest that the direct yen-rupee mechanism could reduce transaction costs by up to 30% compared to dollar-based settlements, making it an attractive option for businesses. By bypassing the US dollar, India and Japan aim to mitigate risks associated with currency fluctuations and geopolitical tensions, fostering a more independent financial ecosystem. The move also aligns with broader efforts to promote the rupee and yen as reserve currencies, enhancing their global standing.
As the two nations explore this financial innovation, it reflects their shared goal of reducing dependency on the US dollar and creating a more diversified currency network. The success of this initiative could serve as a model for other countries in the region, encouraging similar bilateral agreements and strengthening the Indo-Pacific’s economic cohesion. This development is poised to reshape trade dynamics and reinforce the strategic partnership between India and Japan in the years to come.
