TOKYO - Japan and China will begin direct yen-yuan trading on June 1, Japanese Finance Minister Jun Azumi said Tuesday, abandoning the existing system that determines yen-yuan rates via their US dollar values.

The yen-yuan trading will be dealt at the Tokyo and Shanghai markets, Azumi said in a press conference in Tokyo.

Azumi said the direct trading will lower transaction costs and reduce settlement risks of the financial institutions and facilitate the using of both the Japanese and Chinese currencies.

The yen-yuan direct trading will also inject vitality into Tokyo's financial market, he said.

It is also the first time China has allowed a major currency other than the US dollar to trade directly with the yuan, Japanese media reported. The move is broadly seen as a way to boost trade and investment between the world's second- and third- largest economies.

China overtook Japan to become the world's second-largest economy in 2010, and the two countries are working actively together to forge closer business ties.