BEIJING - China on Tuesday announced that direct trading of its currency against the Japanese yen will begin later this week, bringing the yuan one step closer to becoming a truly global currency.

Authorized by the country's central bank, the trading marks the first time for China to allow a major currency other than the US dollar to be traded directly against the Chinese currency RMB, or the yuan.

As part of the efforts between China and Japan to strengthen cooperation in developing the financial market, the move serves as an important means of promoting direct yuan-yen trading, the People's Bank of China said in a statement on its website.

Yuan-yen trading will start on China's interbank foreign exchange market on Friday, according to the China Foreign Exchange Trade System, the market operator.

The central parity rate of the yuan against the yen will be based on the average price of offers made by registered dealers before the opening of the market each business day.

With the greenback as an intermediate currency, the yuan is currently allowed to be traded against eight other currencies on the market, including the euro, British pound, Hong Kong dollar, Japanese yen, Malaysian ringgit, Russian ruble, Australian dollar and Canadian dollar.

As China overtook Japan as the world's second-largest economy in 2010, the move is expected to boost trade between the two leading economies in the wake of the eurozone's economic downturns, and more importantly, promote greater internationalization of the yuan, analysts said.

"A directly-formed yuan-yen exchange rate will help enterprises mitigate risks brought by a fluctuating US dollar and reduce exchange losses for Chinese and Japanese companies," said Ding Zhijie, dean of the School of Banking and Finance with the University of International Business and Economics.

Liu Dongliang, an analyst with the China Merchants Bank, said although the new system doesn't allow free convertibility, it makes way for simplified transactions and lower transaction costs.

Japan ranks the fourth among China's trading partners after the European Union, the United States and the Association of Southeast Asian Nations, while China has been Japan's largest trading partner for the past three consecutive years. Bilateral trade rose 14.3 percent year-on-year to reach $344.9 billion in 2011.

"It is also a crucial step in the drive to make the yuan 'go-global,' which indicates China is trying to cut the yuan's reliance on the greenback while making it a presence in the international currency market," said Zhang Bin, a researcher at the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences.

The announced introduction of direct yuan-yen trading shows the important role of the offshore RMB market in Tokyo, moving the yuan closer to a global currency, Liu Dongliang said, expecting the system to be expanded to more currencies, including the euro and British pound.

China has been taking steps to open its financial market and internationalize the yuan at the same time.

To promote the use of the yuan, the government this year has raised the investment quotas for its Qualified Foreign Institutional Investors scheme and RMB Qualified Foreign Institutional Investors pilot program, both targeted to widen investment channels for overseas capital on the Chinese mainland as capital accounts are still controlled in the country.

Since the onset of the 2008 global financial crisis, China has signed currency swap agreements worth more than 1.5 trillion yuan ($238 billion) with a dozen of countries, including the Republic of Korea and Malaysia.