BEIJING - Chinese Premier Wen Jiabao Sunday told visiting Japanese Prime Minister Yoshihiko Noda that China is willing to work with Japan in promoting the direct use of their respective currencies in bilateral trade.

China's central bank announced shortly after the Wen-Noda talks to encourage the direct use of Chinese currency RMB, or the yuan, and Japanese yen in cross-border transactions between China and Japan.

The People's Bank of China (PBOC) said on its website that the Chinese and Japanese leaders agreed to strengthen cooperation in the financial markets of the two countries and encourage more bilateral financial transactions.

"As implications from the current global financial crisis continue to spread and the complexity and severity of the world and regional situations are worse than expected, it is necessary and possible that China and Japan join efforts to address the challenges and deepen strategic reciprocal ties," Premier Wen said to Prime Minister Noda at the Great Hall of the People in Beijing.

Wen added that China also hopes to accelerate the process of building a free trade zone among China, Japan and the Republic of Korea as well as to boost East Asian monetary and financial cooperation.

The PBOC said in the online statement that the China-Japan financial cooperation might help reduce risks stemming from fluctuations of foreign exchange rates and transaction costs during trade settlement.

The Chinese central bank said that applications are currently under way from Japan to buy Chinese government bonds, but with little details provided.

The PBOC also encouraged Japan to make direct RMB investments in the Chinese mainland.

The statement said the PBOC supports the development of the direct trading market of RMB and Japanese yen. The PBOC also allows Japanese companies to issue RMB bonds in Tokyo and other overseas markets and approves a trial program of RMB-bonds issuing by the Japan Bank for International Cooperation in the Chinese mainland.

Gao Haihong, an international finance scholar at the Chinese Academy of Social Sciences, said in an International Economic Review paper that Asian nations need to restructure their growth patterns in order to enhance regional trade, investment and monetary cooperation as external demand from markets such as the United States and the European Union falter.

The PBOC said in October that foreign institutional and individual investors would be able to apply for permits to make direct investments in China with the settlement of RMB in line with China laws and regulations.