China has given Japan the go ahead to buy $10bn (£6.4bn) of government bonds as Beijing tries to create a more international role for its currency.
China wants the yuan to become an alternative global reserve currency to the US dollar.
Last year, Beijing and Tokyo agreed to promote the direct exchange of their currencies to cut costs for businesses and boost bilateral trade.
Japan and China have the world's largest foreign exchange reserves.
"For China, the move is linked to its efforts to internationalise the yuan," said Zhang Yongjun of the China Centre for International Economic Exchanges.
"Allowing foreign investments in its debt market will make the yuan more accepted internationally."