Synopsis:

MUFG expects USD/CNY to reach 7.50 by Q2 2025, citing rising US tariffs on China as a core risk. Trump’s “America First” agenda, US-China competition, and efforts to revive US manufacturing make further tariff increases likely, with a phased 20% tariff hike on Chinese goods expected. While China’s upcoming National People’s Congress (NPC) in March may introduce supportive economic policies, they are unlikely to outweigh trade risks and the slow property sector recovery.

Key Points:

1. US Tariffs Likely to Increase

   • Trump ordered a trade practices review on Day 1, with results due by April 1.
   • A phased 20% increase in US tariffs on China remains MUFG’s base case.
   • Tariffs will serve as a key foreign policy and negotiation tool.

2. China’s Economic Policy Response – NPC Meeting in March

   • The National People’s Congress (NPC) will set economic targets for 2025, including:
     • GDP growth target
     • Budget deficit ratio
     • Other key fiscal & monetary policies
   • However, positive domestic developments are likely to be overshadowed by tariffs.

3. Property Sector Recovery Remains a Drag

   • China’s property market remains in a long recovery phase, limiting near-term economic upside.

4. USD/CNY Forecast: 7.50 by Q2 2025

   • Trade risks and capital outflows continue to put pressure on the CNY.

Conclusion:

MUFG sees rising US-China trade tensions and potential tariff increases as key risks for the yuan, with domestic policy measures unlikely to provide enough support. As a result, USD/CNY is forecast to rise to 7.50 by Q2 2025.