--China, Japan pledged to strengthen bilateral financial cooperation, says China's central bank

--China, Japan will facilitate the use of both currencies in cross-border settlements

--China will allow Japan to use yuan to conduct direct investment in the mainland

--Two countries will promote the development of a direct trading market between yuan and yen

(Updates to add quotes by China's central bank in the second paragraph, comments in the 5th and 6th paragraphs, and comments by Chinese Premier in the 8th and 9th paragraphs)

BEIJING (MarketWatch) -- Chinese and Japanese leaders pledged to strengthen bilateral financial cooperation, and the two countries will facilitate the use of their currencies in cross-border trade settlements, China's central bank said Sunday.

"To support the growing economic and financial relations between China and Japan, the two countries' leaders pledged to strengthen bilateral financial market cooperation, and encourage bilateral financial trade," the People's Bank of China said in a statement posted on its website.

China will allow Japan to use the yuan to conduct direct investment in the mainland, and support the development of a direct trading market between the yuan and yen, the People's Bank of China said in a statement posted on its website.

The two countries will also promote the development of yuan-denominated and yen-denominated bond markets, the statement said.

The government-affiliated Japan Bank for International Cooperation could issue yuan-denominated bonds on China's mainland market in a pilot project, and Japanese businesses are also allowed to issue yuan bonds in Tokyo and other overseas market, it said.

Japanese government is applying to buy Chinese government bonds, according to the statement.

The statement came after a meeting between Japanese Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing Sunday.

"The current global financial crisis has been continuing to expand, and the complexity and severeness of the global and regional situation are beyond prediction," Chinese Premier Wen Jiabao said in a statement, according to state-run Xinhua News Agency.

"So it is necessary and conditions are ready for China and Japan to closely work together and deepen the strategic and mutually beneficial relations when facing the challenges," Wen said in the statement.

The financial cooperation between the two countries is also likely to strengthen the status of yuan as an international currency and reduce the use of U.S. dollars in trade between the two countries.