India and Japan are exploring a new mechanism to settle bilateral trade directly in Indian rupees and Japanese yen, a move that could significantly reduce dependence on the US dollar for cross-border transactions. The proposal is being discussed as part of efforts to strengthen economic ties and make trade between the two countries faster, cheaper and more efficient.
The plan gained momentum during the visit of Japan’s former Economic Security Minister Sanae Takaichi to New Delhi, where she met senior Indian leaders and industry representatives. According to reports, both sides are considering a framework that would allow exporters and importers to settle payments in their own currencies instead of converting them into US dollars.
At present, most trade between India and Japan is invoiced and settled in dollars. This involves multiple currency conversions, increasing transaction costs and exposing businesses to exchange rate fluctuations. A direct yen-rupee settlement mechanism is expected to simplify payments, reduce foreign exchange risks and improve ease of doing business for companies on both sides.
Officials believe the initiative could encourage more small and medium enterprises to participate in bilateral trade by lowering banking charges and making international transactions more predictable. It would also strengthen financial cooperation between the two countries and support efforts to diversify payment systems amid increasing global economic uncertainties.
The proposed arrangement builds on India’s broader push to promote the international use of the rupee. In recent years, India has introduced local currency settlement mechanisms with several countries to reduce reliance on the dollar and enhance the resilience of cross-border trade.
Japan, aims to deepen economic engagement with trusted partners in the Indo-Pacific region, with this trade option. India is already one of Japan’s key strategic and investment destinations, with cooperation spanning infrastructure, manufacturing, technology and clean energy.
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