India, Japan Eye Yen-Rupee Trade Settlement in Fresh De-Dollarization Push

• India and Japan may introduce direct yen-rupee settlement for bilateral trade
• The proposal could reduce reliance on the US dollar for cross-border payments
• The initiative builds on expanding India-Japan trade and investment ties

Trade between India and Japan has been expanding over the past few years. But a new proposal could reshape how those transactions are settled. As Japanese Prime Minister Sanae Takaichi arrives in New Delhi for the annual summit, India-Japan trade is expected to take center stage with discussions around a direct yen-rupee settlement framework. The idea goes beyond easing payments. This points to a notable shift in how major economies are approaching cross-border commerce.

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India and Japan Discuss Direct Yen-Rupee Settlement

One of the key items expected to feature in the joint statement is a proposal. This India-Japan proposal allows businesses to settle bilateral trade directly in yen and rupees instead of routing transactions through the US dollar, according to recent reports.

Under the proposed framework, Japanese companies and financial institutions would be able to open accounts with Indian banks. This would make it easier to complete cross-border payments in local currencies. The arrangement is designed to lower transaction costs, reduce exchange-rate risks, and simplify trade settlements for companies operating in both markets.

The proposal comes as economic ties continue to deepen. According to India’s Ministry of Commerce, bilateral trade reached $27.5 billion during fiscal year 2025-26. Meanwhile, Japanese investment in India totaled $3.2 billion between April and December 2025. Japan also committed to investing 10 trillion yen (over $60 billion) in India over the next decade following last year’s summit.

Leaders of both nations are also expected to discuss a slew of things along with trade during the 16th India-Japan Annual Summit. This includes investment, defence cooperation, supply chains, and technology

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The Proposal Adds Another Chapter To The De-Dollarization Conversation

India and Japan’s latest plan does not replace the dollar in global trade. But it shows a growing preference among trading partners to use local currencies where practical.

Japan has already introduced a similar settlement framework with Indonesia, where local-currency transactions reached $7.7 billion in 2025. Tokyo is also studying comparable arrangements with Malaysia.

For India and Japan, the motivation appears largely economic. Around 1,400 Japanese companies operate in India. About half of them are in manufacturing, and faster, more predictable payment systems are increasingly valuable.

Whether the proposal is formally adopted this week is yet to be seen. But including currency cooperation in a leaders’ joint statement for the first time would mark a notable step in the evolving financial relationship between Asia’s second- and fifth-largest economies. This comes with fresh momentum to the de-dollarization trend centered on local-currency trade rather than the outright replacement of the US dollar.

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