A BNY note said the renminbi’s year-to-date rise in nominal terms against the USD, EUR and the NA-3 currencies (JPY, KRW and TWD) has reduced the scope for US and EU claims of Chinese currency undervaluation. The document referenced mid-June remarks by German Chancellor Friedrich Merz, who called for a new Plaza Accord and implied the currency was 30% undervalued, while adding that the renminbi was up close to 11% versus the KRW over the same period. It also pointed to large NA-3 trade surpluses and recycling flows as factors supporting current exchange-rate misalignments.
The note linked China’s tolerance for currency strength to a jump in imports from Japan, South Korea and Taiwan, with semiconductors singled out as the main driver. Using the Harmonised System, it said purchases in HS 85 rose to over CNY 300bn in May, a near 60% year-on-year increase. It added that weak inflation has limited REER appreciation even as the nominal exchange rate has strengthened, and that gains versus NA-3 could pause once import pressures ease.
Yuan Strength as a Policy Tool to Secure Semiconductor Imports
We see the ongoing strength in the Chinese Yuan as a deliberate policy choice, not a purely market-driven event. China is using a stronger currency to lower the cost of critical semiconductor imports from Japan, South Korea, and Taiwan. This also helps deflect Western claims that Beijing keeps its currency artificially low to boost exports.
This trend has continued through the second quarter of 2026, and we see it persisting for now. Recent customs data from June 2026 shows semiconductor imports under the HS 85 category remain elevated, up nearly 55% year-over-year, supporting the need for a strong renminbi. The USD/CNY has dipped below 7.05, and the yuan is now up over 13% against the Korean won year-to-date, making those imports cheaper.
For the coming weeks, we believe traders should consider strategies that benefit from a stable-to-stronger yuan against the currencies of these North Asian exporters. This could involve buying CNH call options or selling JPY, KRW, and TWD futures against the renminbi. The key is to ride this policy-driven momentum while it lasts, as the fundamental economic picture does not support such yuan strength.
Timing the Turn: Monitoring Risks of A Yuan Reversal
However, we are watching for signs of a reversal, which will likely be tied to China’s progress in domestic chip production. News that China’s own national champion foundries are targeting Q1 2027 for mass production of next-generation chips suggests this policy has a clear expiration date. When China no longer needs to rely so heavily on imports, the strategic case for a strong yuan will evaporate.
Therefore, we are also looking at longer-dated options, around three to six months out, that would profit from a sharp reversal. Implied volatility in pairs like CNH/KRW seems too low given the potential for an abrupt policy shift from Beijing later this year. Positioning for a weaker yuan on that horizon could be a highly profitable trade.
We recall the sudden yuan devaluation in 2015, which showed how quickly Chinese authorities can move when strategic priorities change. That event demonstrated that the People’s Bank of China is willing to surprise the market to achieve its goals. We expect a similar dynamic once the nation’s semiconductor import needs have been met.
