TOKYO (Reuters) - Japanese firms offered the biggest pay hikes in three decades at this year's negotiations with workers, the country's largest trade union group said on Wednesday, a development economists say will help revive anaemic consumer demand.

A survey conducted by Rengo, Japan's umbrella trade union group, showed pay hikes first reported by unions at the largest employers in March were now broadening to workers at small and medium enterprises (SMEs), or those with unions of 300 or fewer members.

The final survey of 5,272 unions affiliated with Rengo showed an average pay hike of 3.58%, or 10,560 yen per month, the biggest increase since 3.9% seen in 1993. Among them, SMEs raised wages by 3.23%, also the fastest pace in three decades.

Wage growth is one of the key trends the Bank of Japan (BOJ) is closely watching as it considers if and when it should unwind its ultra-loose monetary stimulus.

BOJ Governor Kazuo Ueda has repeatedly stressed the need to keep policy accommodative until wages increase enough to keep price growth sustainably around its 2% target.

"Rising prices and a chronic labour crunch are driving up wages, which will continue to rise next year. What's important from now on is to bring real wages to positive territory," said Hisashi Yamada, economist and Hosei University professor.

"Rising wages will help stabilise inflation at 2% towards next year, keeping the central bank under pressure to scrap yield curve control sooner or later."

By Andrea Shalal

WASHINGTON (Reuters) - U.S. Treasury Secretary Janet Yellen's first trip to China will focus on recalibrating ties between the world's two largest economies, as military communications remain frozen and Beijing's new restrictions on exports of some metals spark fresh tensions.

U.S. officials say they expect "candid" discussions during Yellen's July 6-9 trip, after Beijing's abrupt announcement on Monday of controls on exports of some gallium and germanium products widely used in semiconductors, as well as a new counterespionage law, both seen as potentially harmful to U.S. firms.

No major breakthroughs are expected, but Yellen will push to open new lines of communication and coordination on economic matters, and stress the consequences of supplying lethal aid to Russia, U.S. officials say.

Chinese officials are concerned about the Biden administration's plans to limit U.S. companies' China investments and what they see as moves to decouple the two economies. China's economy is recovering more slowly than expected from COVID lockdowns and the job market is tough.

Yellen's long-anticipated trip follows weeks after Secretary of State Antony Blinken visited Beijing and agreed with Chinese President Xi Jinping that the two countries' rivalry should not veer into conflict, and amid a freeze in military communications between the two nations.

"There is no substitute for diplomacy," said one senior administration official. "A phone call is just not the same."

Wu Xinbo, a professor at China's Fudan University, described Yellen as a "voice of reason" within the Biden administration, and said China hopes Yellen's visit can "improve the mood" for potential future talks with Commerce Secretary Gina Raimondo on tariffs and sanctions on Chinese tech companies.

But some critics said the meetings were sidestepping important issues.

Derek Scissors, a senior fellow at the American Enterprise Institute, said Yellen was embarking on "an empty trip," given China's refusal to engage on potentially dangerous military issues.

"They look like supplicants. On the security side, the Chinese won't talk to us, so it looks like the economic side is being used as a substitute," he said. "It's not unimportant, but it's unpleasant and odd."

IMPROVING COMMUNICATION

Yellen is expected to focus on economic issues, but she will remind Chinese counterparts that any move to supply lethal aid to Russia - in violation of sanctions on Russia over its war in Ukraine - could trigger sanctions on Chinese entities, one senior administration official said.

"We routinely hear Chinese assurances that they will not deliver lethal assistance. We are holding them to that, and we'll continue to watch," the official said.

The U.S. believes China is unnerved by last month's mutiny by Russia's Wagner mercenary group and the weakness of the Russian military, the official said, but Beijing relies on a stable Russia for food and fuel.

Both Blinken and Yellen's visits are seen as critical to improving communication after the U.S. military shot down a Chinese spy balloon over the United States, and ahead of a possible meeting between President Joe Biden and Xi at the Asia-Pacific Economic Cooperation meeting in San Francisco in November.

"Secretary Yellen’s trip is more than a step toward preparation for a potential Biden-Xi meeting at APEC. The top economic officials of the world’s two largest economies have barely spoken to each other in over three years, and that is dangerous for the global economy," said Scott Kennedy with the Center for Strategic and International Studies.

TRADE TARIFFS REMAIN

National Foreign Trade Council President Jake Colvin said the trip could help define a "new normal" and establish a floor under the bilateral relationship. But it won't end $360 billion in tariffs imposed under former President Donald Trump, or export controls that have gathered steam under Biden.

Despite the cooling relations, trade between the U.S. and China grew in 2022 for the third year in a row, U.S. Commerce Department data show.

"There's still opportunity in China for American businesses, farmers and workers," Colvin said. "We can't just be looking at this exclusively through the lens of de-risking."

Yellen will emphasize the need to work with Beijing on climate change, pandemic preparedness and debt distress, even as Washington continues to take targeted actions over human rights or security concerns, a senior Treasury official said.

She will tell her Chinese counterparts that Washington is not seeking to decouple the two economies, which together account for 40% of global economic output, while reserving the right to protect human rights and U.S. national security interests through targeted actions, the official added.

Yellen will meet for the first time with China's new Vice Premier He Lifeng, after seeing his predecessor, Liu He, in Zurich in January, one administration official said, predicting a different dynamic with the new vice premier, a Xi loyalist who is less comfortable in English and hails from a planning background, not finance and economics. "I would suspect it will be more formal," the official said.

Two other Cabinet secretaries, Commerce chief Raimondo and U.S. Trade Representative Katherine Tai, met in May with Chinese Commerce Minister Wang Wentao. U.S. officials are also hoping to expand economic communication channels below the Cabinet level.

By Jamie McGeever

(Reuters) - A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

The most important Asian economic indicator from a pretty packed calendar on Wednesday, and biggest potential market-mover, will be China's services purchasing managers index report for June, which comes amid the latest ratcheting up of U.S.-Sino tensions.

Traders will also have Japanese, Australian and Indian services PMIs to digest, as well as the latest inflation data from Thailand and the Philippines, and can expect trading volume to return to more normal levels after the July 4 U.S. holiday.

Currency traders are on high alert for intervention from authorities in Beijing and Tokyo to slow the slide in the yuan and yen, respectively, while Asian stocks ex-Japan will be looking to rise for a fourth day in a row - a winning streak not seen for two months.

The main focus, however, will be on China. The economy has sputtered this year, triggering downward revisions to GDP growth estimates, widespread underperformance of Chinese assets, and increasing calls for fiscal and monetary stimulus.

China's economic surprises index shows just how much recent data have undershot analysts' expectations - it is deeply negative, tumbling fast, and at its lowest in six months.

Service sector activity, however, has held up reasonably well and has expanded every month this year, according to the PMI data. A solid number could help soothe investors' concerns.

The yuan rose to a one-week high against the dollar on Tuesday as the central bank fixed the currency higher and major state banks again lowered their dollar deposit rates as authorities stepped up efforts to arrest the yuan's slide.

The political backdrop to this is the latest flare up in U.S.-Sino tensions.

China abruptly announced on Monday a series of curbs from Aug. 1 on exports of some metals widely used in semiconductors and electric vehicles, ramping up a trade war and potentially causing more disruption to global supply chains.

This comes ahead of a planned visit to Beijing by U.S. Treasury Secretary Janet Yellen this week.

Elsewhere in local FX markets, the Australian dollar rose for a fourth day on Tuesday after the Reserve Bank of Australia left its benchmark cash rate on hold at 4.10%.

This was the second time in the RBA's tightening cycle it has stood pat on rates following April's shock pause, but was far less of a surprise - money markets had put only a one-in-three probability on a hike to 4.35%.

Aussie bulls latched onto the RBA's warning that further tightening might be needed to tame inflation, and overnight swaps are still pointing to almost 50 basis points of further tightening this year.

Here are key developments that could provide more direction to markets on Wednesday:

- China, Japan, India, Australia services PMIs (June)

- Philippines CPI inflation (June)

- Thailand CPI inflation (June)

(By Jamie McGeever; Editing by Alistair Bell)

Investing.com -- Global stocks search for direction with Wall Street set to remain closed on Tuesday for the July 4 holiday. Meanwhile, Meta gears up to release a platform to rival Twitter later this week in a bid to attract users unhappy with Elon Musk's management of the social media site. Elsewhere, China unveils export controls on two key minerals in the latest development of an ongoing war over microchips between Beijing and the West.

1. Global stocks muted amid U.S. holiday, light data calendar

European and Asian stock markets hovered broadly around the flatline on Tuesday as investors were searching for cues in a light data calendar and a U.S. holiday.

At 05:07 ET (09:07 GMT), the DAX index in Germany slipped 6 points or 0.04%, France's CAC 40 rose by 3 points or 0.05%, and the pan-European Stoxx 600 gained 1 point or 0.23%. In the U.K., the FTSE 100 index edged up by 8 points or 0.11%.

The muted trading in the region comes after shares in Asia moved in a flat-to-low range, with a string of weak data prints from major economies denting risk appetite. Japanese stocks, in particular, slid from 33-year highs, in a sign that a recent rally in equities in the country may be stalling.

Elsewhere, China's Shanghai Shenzhen CSI 300 and Shanghai Composite posted small increases, while the KOSPI in South Korea shed 0.35%.

Markets on Wall Street, meanwhile, will be closed today for the Independence Day holiday.

2. Meta's Twitter rival

Facebook-owner Meta (NASDAQ:META) is set to unveil its answer to Twitter later this week, according to a listing in the Apple App Store, piling pressure on Elon Musk's social media company to retain users who have become disgruntled over the billionaire's management of the business.

Meta's new service, Threads, will launch on Thursday. The "text-based conversation" app, which will be directly linked to Meta's mega-popular photo-sharing platform Instagram, claims that it will be place "where communities come together to discuss everything from the topics you care about today to what'll be trending tomorrow."

The release of Threads could prove to be yet another challenge for Twitter. Users have already begun to seek alternatives to the platform in response to controversial decisions taken by Musk, who bought the company for $44 billion in October.

Most recently, Musk announced that limits will be placed on the number of posts that can be viewed, saying it was necessary in part to "address extreme levels of data scraping." The decision was widely slammed by users, many of whom pay monthly fees for increased prominence on the site.

3. China curbs exports of semiconductor metals

China has restricted access to exports of two crucial minerals used in the creation of computer chips, in the latest salvo in the war over semiconductors between Beijing and the West.

According to China's Ministry of Commerce, the minerals gallium and germanium will be subject to unspecified export controls starting next month. The U.S. has said the metals are crucial in the production of microchips, military equipment, and communications.

In a statement, the Chinese ministry said the measure will help protect "national security and interests."

Meanwhile, the Wall Street Journal reported on Tuesday the U.S. is also preparing to place restrictions on Chinese companies' access to cloud computing services, including those of Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).

4. Supply cuts push up oil

Oil prices climbed on Tuesday, as traders weighed increased supply cuts by key exporters Saudi Arabia and Russia against signs of weakening global economic activity.

At 05:10 ET, U.S. crude futures traded 0.70% higher at $70.49 a barrel, while the Brent contract added 0.74% to $75.39 per barrel.

Saudi Arabia announced on Monday it will extend its recently announced 1 million barrels per day cuts to August and potentially beyond, while Russia also said it will trim its oil exports by 500,000 bpd.

However, any gains are likely to be limited with U.S. markets on holiday.

5. RBA keeps interest rates steady

The Reserve Bank of Australia has decided to maintain its cash rate at an 11-year high of 4.10% on Tuesday, as it attempts to gauge the impact of the 400 basis points of hikes since last May on the broader economy.

But Australia's central bank flagged that further tightening may still be needed to bring down elevated price growth. Inflation rose by 5.6% on an annual basis in May, according to official data, although this was slower than a recent peak of 8.4% in December.

"Inflation is still too high and will remain so for some time yet," warned RBA governor Philip Lowe in a statement.

The RBA is one of several central banks to embark upon a campaign of aggressive borrowing cost increases recently; the trend that has been a major driver of trading sentiment throughout 2023.

By Winni Zhou and Ryan Woo

SHANGHAI/BEIJING (Reuters) - China's major state banks have lowered their dollar deposit rates for the second time in a month, seven banking sources with direct knowledge of the matter said, as authorities have stepped up efforts to arrest a slide in the yuan.

Interest rates offered by the "Big Five" state-owned lenders on most dollar deposits are now capped at 2.8%, down from 4.3% previously, said the people, who declined to be named as they were not authorised to speak to the media.

The People's Bank of China, which typically issues guidance on dollar deposit rates to state banks, did not immediately comment on the matter.

The lenders - Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China (OTC:ACGBF), China Construction Bank (OTC:CICHF) and Bank of Communications - did not immediately respond to requests for comment.

Traders and analysts said policymakers, worried that a prolonged yuan slide could both discourage foreign investment and spur an outflow of funds abroad, want to bring down dollar deposit rates - which typically track offshore rates - towards domestic rates, which have been cut to aid the flagging economy.

The yuan is one of the worst-performing Asian currencies this year, knocked nearly 5% lower against the dollar by a slowdown in China's economy and widening yield differentials with the United States.

"It shows that the move is to narrow the interest rate advantage of the U.S. dollar in onshore markets," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

"It is likely aiming to prevent stockpiling dollars and encouraging (foreign exchange) settlements."

The lower rates could both discourage households from putting savings into higher-yielding dollar deposits and nudge Chinese firms, especially exporters, to settle foreign exchange receipts in yuan.

The new rates came into effect on July 1, said two of the sources, adding that some of the banks were not offering rates above the 2.8% cap for large deposits. Banks typically offer higher rates to deposits exceeding $1 million.

The PBOC, China's central bank, has recently moved to brake the yuan's slide against the dollar, setting stronger-than-expected daily fixings for the currency, while state banks have also been spotted selling dollars on occasion in both the onshore and offshore markets, trading sources said.

The latest cut in dollar deposit rates was the second in barely a month. In early June, sources told Reuters the big state banks had lowered such rates as much as 100 basis points from the previous ceiling of 5.3%.

Sources also told Reuters last week that the central bank has surveyed some foreign banks about the interest rates they offer to their clients for dollar deposits.

The PBOC said last Friday it would continue to keep the yuan basically stable and guard against the risk of large exchange rate fluctuations.

Some currency traders also said the cuts in dollar deposit rates would ease pressure on commercial lenders' net interest margin, as banks' dollar deposit rates had risen above lending rates before the recent adjustments.

The latest PBOC data showed that the weighted-average interest rate on large dollar deposits stood at 5.67% in March, up 4.15 percentage points from a year earlier, while the weighted-average dollar lending rate was up only 3.74 percentage points at 5.34%.

By Xie Yu

HONG KONG (Reuters) - Most Asian stocks fell on Tuesday, while the U.S. dollar and oil steadied, as investors held safe ranges awaiting more clues on whether central banks will continue their aggressive interest rate hikes.

Market conditions were also subdued heading into the U.S. Independence Day public holiday on Tuesday, with most of Wall Street closed.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1%, by Tuesday mid-morning.

Australian shares were mostly flat, as investors waited to see whether the central bank will tighten again when it announces a policy decision later in the day.

Japan's Nikkei share average fell 1.1% as investors exited some bullish positions after the benchmark index closed at a 33-year high in the previous session.

China's mainland benchmark and Hong Kong's Hang Seng Index were each down by 0.2%.

U.S. S&P 500 E-mini stock futures slipped 0.1% in Asian trade. Wall Street stock indexes ended Monday's shortened session up slightly along with Treasury yields.

In coming days, investors are watching out for a mixed bag of economic data ahead of second-quarter earnings, while uncertainty remains over the Federal Reserve's policy path, said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas (OTC:BNPQY).

The minutes from the Fed's last meeting are due later this week, which could provide additional clues on policy direction but also inject some volatility, he said.

"If the Fed overtightens and decides to do more rate hikes than twice as the market widely expected, then there's a concern that the recession may turn out to be deeper than what is being factored in," Raychaudhuri said.

Geopolitical tensions also persist, he noted, with China's export controls on minerals adding more uncertainty around global trade relations.

In the currency market, the dollar index, which tracks the greenback against six major peers, rose slightly to 102.97.

Oil prices held steady on Tuesday, after settling 1% lower on Monday, as markets weighed supply woes from cuts for August by top exporters Saudi Arabia and Russia against economic data that suggested demand was weak.

Brent crude futures were up 0.3% at $74.87 a barrel. U.S. West Texas Intermediate crude also added 0.3% to $70.06.

The Treasury market is shut Tuesday for Independence Day. On Monday, a widely watched section of the U.S. Treasury yield curve hit its deepest inversion since the high inflation era of Fed Chairman Paul Volcker, reflecting financial markets' concerns that an extended Fed hiking cycle will tip the United States into recession.

By Ankur Banerjee

SINGAPORE (Reuters) - The yen nudged up on Tuesday but remained vulnerable to more weakness, hovering near the key 145 per dollar level as markets were on alert for signs of intervention, while the Australian dollar moved up ahead of a central bank policy decision.

The yen was up 0.17% at 144.42 per dollar in early Asian hours, but remained close to last week's eight month low of 145.07 per dollar that prompted Finance Minister Shunichi Suzuki to warn against excessive yen selling.

Earlier on Tuesday, Japan's top financial diplomat Masato Kanda said that officials were in close contact with U.S. Treasury Secretary Janet Yellen and other overseas authorities almost everyday on currencies and broader financial markets.

"This is sending signals that a coordinated intervention may be coming as yen continues to hover above 144 per dollar," said Charu Chanana, market strategist at Saxo Markets.

"A coordinated intervention usually has a longer lasting impact on the yen than a unilateral intervention would have."

Japan bought yen in September, its first foray in the market to boost its currency since 1998, as the Bank of Japan's pledge to retain ultra-loose policy as long as required drove the yen as low as 145 per dollar. It intervened again in October after the yen plunged to a 32-year low of 151.94.

Against a basket of currencies, the dollar eased 0.039% to 102.910 after data overnight showed U.S. manufacturing slumped further in June, reaching levels last seen when the nation was reeling from the initial wave of the COVID-19 pandemic.

"We expect the U.S. economy to face a recession starting in Q3 23," Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia (OTC:CMWAY), adding that it was likely to be a quiet day for the currency market with no major data releases or central bank speech scheduled. U.S. markets are closed for the July 4 Independence Day holiday.

Investor focus this week will be on nonfarm payrolls data along with jobs report for more clues about the broader labour market in the United States. Minutes of the U.S. Federal Reserve's June meeting are also due to be released on Wednesday.

Markets are pricing in a near 87% chance of a 25 basis point hike in the next Federal Reserve meeting at the end of the month, the CME FedWatch tool showed.

RBA WATCH

The focus in Asian hours will be on the policy decision from the Reserve Bank of Australia (RBA).

Markets are leaning towards a pause, with swaps pricing a 63% chance of a hold in rates after data last week showed consumer inflation slowed to a 13-month low in May. But economists were split on the outcome, with 16 out of 31 polled by Reuters expecting a hike and the rest forecasting the bank to stand pat. [AU/INT]

Since a surprise pause in April and subsequent hikes in May and June, economists have been mostly divided in recent months over the RBA's next move.

CBA's Clifton said the slight easing in inflation in May should please the RBA but with a tight labour market as well as still high price pressures, a 25 bps hike would not be a surprise.

"We estimate that a hike would push up Aussie modestly by 0.8% so long as the post‑meeting statement was not dovish.  No change or a dovish hike could pull AUD modestly lower." 

The Australian dollar was at $0.668, up 0.16% against the U.S. dollar, while the New Zealand dollar was also up 0.16% at $0.616.

The euro was up 0.02% to $1.0913, while sterling was last at $1.2699, up 0.06% on the day.

========================================================

Currency bid prices at 0209 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0908 $1.0915 -0.04% +1.82% +1.0915 +1.0908

Dollar/Yen 144.6100 144.6900 -0.09% +10.15% +144.6900 +144.4500

Euro/Yen 157.76 157.87 -0.07% +12.44% +157.9100 +157.6000

Dollar/Swiss 0.8965 0.8965 +0.02% -3.03% +0.8967 +0.8958

Sterling/Dollar 1.2691 1.2691 +0.02% +4.95% +1.2701 +1.2688

Dollar/Canadian 1.3248 1.3249 -0.01% -2.22% +1.3256 +1.3246

Aussie/Dollar 0.6679 0.6671 +0.10% -2.03% +0.6684 +0.6670

NZ 0.6158 0.6152 +0.11% -3.01% +0.6164 +0.6154

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

By David Randall

(Reuters) - A widely watched section of the U.S. Treasury yield curve hit its deepest inversion on Monday since the high inflation era of Fed Chairman Paul Volcker, reflecting financial markets' concerns that an extended Federal Reserve rate hiking cycle will tip the United States into recession.

The closely-watched spread between the 2-year and 10-year U.S. Treasury note yields hit the widest since 1981 at -109.50 in early trade, a deeper inversion than in March during the U.S. regional banking crisis. The gap was last at -108.30 bp.

Signs of strength in the U.S. economy have prompted market participants to price in the possibility of additional rate hikes this year to keep inflation in check. Futures markets had reflected rate cuts at the central bank's September meeting as recently as May, and are now projecting that the first cuts will come in January.

"The absence of a meaningful round of dip buying is attributable to instability in the policy outlook; once investors are confident in Powell’s vision of terminal [rates], the prevailing bearish bias will be replaced by a more balanced tone," Ian Lyngen, head of U.S. rates strategy at BMO, said in a note Monday.

A yield curve inversion - in which shorter-dated Treasuries trade at higher yields than longer-dated securities - has been a reliable signal of upcoming recessions. The 2/10 year yield curve has inverted six to 24 months before each recession since 1955, according to a 2018 report by researchers at the San Francisco Fed, offering only one false signal in that time.

The spread between 2 and 10-year Treasuries has been inverted since last July.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 3.6 basis points at 4.913% in morning trading Monday. The yield on 10-year Treasury notes was up 1.2 basis points to 3.831%.

SEOUL (Reuters) -South Korea's consumer inflation slowed more than expected and hit a 21-month low, official data showed on Tuesday, weighed by falling oil and agricultural product prices.

The consumer price index rose 2.7% in June from a year earlier, compared with an increase of 3.3% in May and a median forecast of 2.85% in a Reuters survey of economists.

It softened for a fifth consecutive month and marked the weakest annual increase since September 2021, according to Statistics Korea.

Core inflation, which excludes volatile food and energy prices, slowed to 3.5% from 3.9% a month before, marking the slowest annual rise since May, 2022.

The headline index was flat on a monthly basis, compared with a 0.3% rise in the previous month and a 0.2% increase expected by economists.

Prices of petroleum products dropped 4.0% over a month and agricultural products fell 0.9%, but public utility prices rose 2.2%.

Services prices rose 3.3% from a year earlier, weaker than 3.7% in May and the slowest in 14 months.

South Korea's central bank has kept monetary policy unchanged since its last interest rate hike in January and its tightening campaign is widely expected to be over. The bank next meets on July 13.

By Andrea Shalal

WASHINGTON (Reuters) - U.S. Treasury Secretary Janet Yellen will travel to Beijing from July 6-9 for meetings with senior Chinese officials on a broad range of issues, including U.S. concerns about a new Chinese counterespionage law, a senior Treasury official said on Sunday.

Yellen's long-anticipated trip is part of a push by President Joe Biden to deepen communications between the world's two largest economies, stabilize the relationship and minimize the risks of mistakes when disagreements arise, the official told reporters.

It comes just weeks after Secretary of State Antony Blinken visited Beijing and agreed with Chinese President Xi Jinping to stabilize ties and ensure the two countries' intense rivalry does not veer into conflict. China protested loudly when Biden subsequently referred to Xi as a "dictator," but analysts say the remark had little impact on efforts to improve ties.

The Treasury chief plans to tell China's new economic team that Washington will continue to defend human rights and its own national security interests via targeted actions against China, but wants to work with Beijing on urgent challenges such as climate change and debt distress faced by many countries.

"We seek a healthy economic relationship with China, one that fosters growth and innovation in both countries," the official said. "We do not seek to decouple our economies. A full cessation of trade and investment would be destabilizing for both our countries and the global economy."

The official, speaking on condition of anonymity, declined to give details on which Chinese officials Yellen would meet in Beijing. A second administration official told Reuters that Yellen was expected to meet the Chinese Vice Premier He Lifeng.

Yellen would underscore Washington's determination to strengthen its own competitiveness while responding with allies to what Washington calls "economic coercion" and unfair economic practices by China, the first official said.

One clear area of concern involved China's new national security and espionage law, and the potential implications for foreign and U.S. firms, the official added.

"We have concerns with the new measure, and how it might apply, that it could expand the scope of what is considered by the authorities in China to be espionage activity," the official said, citing possible spillovers to the broader investment climate and the economic relationship.

While no major "breakthroughs" were expected, Treasury officials hope to have constructive conversations and build longer-term channels of communication with China's new economic team, including at the sub-cabinet level, the official said.

U.S. officials would also reiterate concerns about human rights abuses against the Uyghur Muslim minority, China's recent move to ban sales of Micron Technology (NASDAQ:MU) memory chips, and moves by China against foreign due diligence and consulting firms.

Yellen would also talk with Chinese officials about a long-awaited U.S. executive action curbing outbound investment in China in certain critical sectors, and "make sure they don't think something is more sweeping than it is or than it's intended to be," the official said.