India, Japan May Push Yen-Rupee Trade Settlement Plan To Cut Dollar Dependence

India and Japan are preparing to move forward with a proposed local-currency settlement mechanism that would enable direct trade payments in yen and rupees, reducing dependence on the US dollar in bilateral transactions, according to a Nikkei Asia report ahead of Japanese Prime Minister Sanae Takaichi’s visit to India.

The proposal is expected to be discussed during the 16th India-Japan Annual Summit, where Prime Minister Narendra Modi and his Japanese counterpart will meet in New Delhi.

The report suggests that the framework could be formally included in the joint statement issued after the summit, marking a significant step in financial cooperation between the two countries.

If implemented, this would allow Japanese non-residents to open accounts with Indian banks, enabling financial institutions in both nations to directly settle cross-border trade and investment payments in yen and rupees.

This would eliminate the need to route transactions through the US dollar, thereby improving efficiency and reducing currency conversion costs.

The initiative is designed to support smoother trade flows, particularly benefiting Japanese companies that are expanding their operations in India.

It is also expected to enhance financial integration and deepen economic ties between the two countries.

The proposal builds on the 2025 Japan-India Joint Vision, which had earlier referenced the idea of strengthening currency cooperation.

However, its potential inclusion in the upcoming summit statement would represent the first time that such a measure is formally endorsed at the leadership level.

Japanese Prime Minister Sanae Takaichi will begin a three-day official visit to India from July 1 to July 3 at the invitation of Prime Minister Narendra Modi.

The visit will focus on expanding bilateral cooperation across multiple sectors, including trade, investment, and defence, according to India’s Ministry of External Affairs.

Japan has previously implemented a similar local-currency settlement arrangement with Indonesia in 2019, under which bilateral transactions reached $7.7 billion in 2025.

Tokyo is also reportedly considering a comparable framework with Malaysia, indicating a broader regional push toward reducing dependence on the US dollar in trade settlement systems.

Overall, the India-Japan initiative reflects a strategic effort to streamline cross-border financial flows and strengthen economic cooperation through currency diversification.