Yuan: a new reality or a global shock?

USD/JPY

Key zone: 159.00 - 160.00

Buy: 160.50 (on a confident break of 160) ; target 162.00-162.50; StopLoss 159.80

Sell: 158.50 (on strong negative fundamentals) ; target 157.00; StopLoss 159.20

A scenario in which the yuan strengthens to 5.0 per U.S. dollar is not currently considered the base case. However, it cannot be completely ruled out. If it materializes, the consequences will extend far beyond the foreign exchange market and affect global trade, commodity markets, international settlements, and capital flows.

Today, one U.S. dollar buys approximately 6.7 yuan. A decline in the USD/CNY pair to 5.0 would imply an appreciation of the Chinese currency by more than 25%. For the world’s second-largest economy and the largest participant in international trade, such a move would inevitably become a factor of global significance.

Formally, the yuan still occupies a relatively modest position in the global financial system: its share in international trade remains below 3%, and China continues to be classified as a developing economy. However, the country’s importance to the global economy is substantially greater than these figures suggest.

Reminder:

China accounts for approximately 20% of global GDP, remains the world’s largest exporter of goods, and is one of the largest buyers of raw materials. Therefore, any significant change in the yuan’s exchange rate automatically affects the purchasing power of the Chinese economy, international trade flows, and the global allocation of capital.

In 2025, China’s exports reached 26.99 trillion yuan, while imports totaled 18.48 trillion yuan. Thus, export shipments exceeded imports by approximately 50%.

For an economy with such a structure, a strong national currency creates mixed effects. On one hand, exporters lose part of their competitive advantage because their products become more expensive for foreign buyers. On the other hand, importers benefit from lower costs when purchasing foreign goods and raw materials.

At the same time, the Chinese model has several important characteristics.

• China imports raw materials and exports products with high added value.
• The foundation of Chinese imports consists of raw materials, components, and equipment, while exports are primarily focused on finished products.
• Cheaper imports can partially offset pressure on manufacturers by reducing production costs and investment expenses.
• In 2025, China recorded a trade surplus of nearly $1.2 trillion. This imbalance has remained one of the key causes of trade tensions between Beijing, the United States, and Europe for many years. A stronger yuan could theoretically reduce the scale of the surplus, especially if the currency appreciation proves sustainable.
• The Asian Dragon remains the world’s largest importer of oil, iron ore, copper, and many other raw materials. However, a stronger yuan does not automatically imply higher purchases. A stronger currency improves import conditions but does not by itself guarantee increased demand for commodities.
• Chinese consumers benefit from a stronger yuan: imported goods become cheaper, inflationary pressure declines, and lower costs for imported components and raw materials further restrain domestic price growth.
• Companies gain greater opportunities for investment: a stronger yuan can alter corporate behavior.
• Lower costs for imported resources make it easier to build inventories, increase investment in processing industries, and expand purchases during favorable market conditions.
• Companies with liabilities denominated in foreign currencies receive an additional advantage: servicing external debt becomes cheaper.
• Consumers in developed countries who have become accustomed to relatively inexpensive Chinese imports may face the opposite effect. As the yuan strengthens, the cost of Chinese goods abroad will rise. As a result, buyers will either have to accept higher prices or seek alternative suppliers.

And what is the result?

An exchange rate of 5 yuan per dollar is unlikely to become an event on the scale of a global financial crisis or a systemic breakdown of the international monetary system.

Nevertheless, such an appreciation of the Chinese currency would represent a serious stress test for global trade and international finance. This scenario remains more of an extreme outcome that could occur only if several factors favorable to China emerge simultaneously.

The main conclusion lies elsewhere: given the scale of the Chinese economy, the consequences of a strong yuan would not be limited to the foreign exchange market. The changes would affect trade flows, commodity markets, corporate balance sheets, and the structure of international settlements.

If such a scenario is ever realized, its effects would unfold gradually — not over weeks or months, but over many years. It would be wise to begin adapting in advance.

So we act wisely and avoid unnecessary risks.

Profits to y’all!