BEIJING – China’s currency has come under more pressure to appreciate since the US and Japan moved to strengthen the yen, according to Bloomberg Economics, potentially draining support for growth as the renminbi gains despite falling bond yields and a sluggish economy.
“The boost to the yen from US-Japan intervention in late July spilled over to other Asian currencies, including the Chinese yuan,” Bloomberg economists David Qu and Chang Shu said in a report published on Aug 12. “This exacerbated an upward trend in the yuan that’s at odds with a widening yield disadvantage against the dollar and weakness across much of the economy outside a thriving tech sector.”
While the yen has now wiped out roughly half its gains from July 31, when Japan and the US conducted their first coordinated intervention to support the yen since 1998, Asian currencies like South Korea’s won are still trading at a stronger level.
The won, Singapore’s dollar and the Taiwanese dollar have had the highest correlation to the yen over the past year, while the Indian rupee and Indonesian rupiah have had the lowest, according to strategists at Citigroup.
China’s central bank has recently been setting the renminbi’s daily fixing at a weaker-than-expected level, in what could indicate its effort to temper the currency’s rally.
Booming demand for Chinese exports has fed into a stronger renminbi in 2026, making it Asia’s best-performing currency against the dollar with a gain of about 3.6 per cent. It has moved largely in disconnect from the state of the domestic economy, especially as slumping long-term sovereign yields widened the spread with comparable US Treasuries.
A stronger currency “opens a window” for the People’s Bank of China (PBOC) to reduce interest rates to support the economy, according to Bloomberg Economics, which expects it to lower its policy benchmark by 10 basis points to 1.3 per cent before the end of 2026.
Until recently, many economists have been retracting calls for a rate cut in 2026 after higher oil prices pushed up factory-gate inflation. But in July, consumer prices grew at the slowest pace in six months while producer inflation eased for the first time since the Iran war broke out in late February, again reviving the risk of deflation.
According to the median estimate in a Bloomberg poll of analysts in July, the PBOC will probably keep its policy rate unchanged for 2026 and 2027.
Renmibi stress indicators compiled by Bloomberg Economics show that appreciation pressures are still intense, with exporters more willing to convert their dollar revenues. By contrast, economic weakness at home is contributing to the decline in Chinese bond yields.
“The strong yuan and China’s widening yield disadvantage are symptoms of its dual-track economy,” Bloomberg’s economists aid. “We see little in the way of policy catalysts to change the trend now. A turning point will hinge on whether top leadership reassesses macro strategy toward the end of the third quarter and deploys broader balance-sheet stimulus.” BLOOMBERG
