Chinese Premier Wen Jiabao (R) shakes hands with visiting Japanese Prime Minister Yoshihiko Noda in Beijing, capital of China, Dec. 25, 2011. [Photo/Xinhua]

China is willing to work with Japan in promoting the direct use of their respective currencies in bilateral trade, Chinese Premier Wen Jiabao told visiting Japanese Prime Minster Yoshihiko Noda at a meeting on Sunday.

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

"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 Noda 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.

Trade volume between the two countries rocketed to 300 billion U.S. dollars in 2010. Japan has become China's second largest trading partner and China is the No.1 trading partner and export market for Japan.

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

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

The PBOC 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.

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.

In April, China purchased 16.6 billion dollars' worth of Japanese long-term bonds, hitting a new high in the past six years. Now, Japan is considering buying about 10 billion dollars of Chinese bonds.