The exchange rate of the yen strengthened against almost all major currencies in Wednesday trading (6/5). It is indicating the Japanese currency is the most sought after by market participants. The Rupiah is also one of the currencies hardest-hit by the Yen.
On Wednesday morning, after the court ruling challenges Germany’s participation in a stimulus program of the European, the yen strengthened against the euro and also rose against the US dollar. Fears of a global economic recovery also left the investors nervous.
At 09.15 WIB, EUR/JPY weakened 0.23% to 115.22 and USD/JPY weakened 0.25% at 106.32. The yen even reached the strongest level in 3 years against the Euro. The Pound also weakened 0.26% to 132.2/GBP, and the Rupiah weakened 0.55% to Rp141.74/JPY. While the USD/IDR edged down 0.09% at 15,093.
Strengthening the Yen by ECB Bond Purchases Policy and the US-China Tension
Germany's highest court on Tuesday (05/05) gave three months for the European Central Bank (ECB) to improve its bond purchase program, or the German central bank, Bundesbank, will not participate in the scheme which aims to reduce the economic impact of covid-19.
The news put pressure on the euro to date and continues to push the yen higher. AUD/JPY also fell 0.22% to 68.39 and NZD/JPY weakened 0.17% at 64.39 at 09.25 WIB. AUD/USD edged up 0.07% at 0.6435 and NZD/USD strengthened 0.12% to 0.6057.
According to the analyst, they believe that the German court's decision may not actually frustrate the European stimulus program. It is because of the European Central Bank (ECB) is likely to be able to provide the necessary justification for its bond purchase.
In addition, tensions between the United States and China also trigger the strengthening of the yen, knowing that this currency is considered a safe haven, even more safe haven than the USD. Last week, Trump said he could impose import duties due to the way China make this global pandemic.
Trump also accused the coronavirus originating from the Wuhan Virology Institute, a laboratory in China. Trump even threatened to cancel the phase I trade agreement reached in January if China failed to fulfill its promise to buy US goods and services worth USD 200 billion.
"They are taking advantage of our country. Now they have to buy and if they don't buy, we will end the deal. It's very simple," Trump said about buying US goods and services, as quoted by the South China Morning Post earlier last week.
In the phase I trade agreement, the United State reduced import duties from 15% to 7.5% of Chinese products and it worth USD 120 billion. While China will buy US products worth USD 200 billion in the next two years.
The Restoration of the World Economy Depends on the US-China Trade War
The "war" against Covid-19 is still not over if the trade wars of the two countries get flogged again, the global economy is predicted to experience a recession in a long time. This was revealed by Peter Chatwell, head of the multi-asset strategy at Mizuho International Plc. London.
"If this (trade war) escalates then sentiment will be broken, and hopes of economic recovery that were previously U-shape will be flatter to L-shape," Chatwell said as reported by Bloomberg News. L-shape is a more dramatic economic recovery than U-shape and V-shape.
The decline of the global economy to a recession caused by the Covid-19 pandemic this year is predicted to rise soon when Covid-19 is successfully stopped. Therefore, the economy is predicted to form a V-shape curve. But several markets are having doubts about that.
The U-shape curve is said to be more appropriate, where the economy is experiencing a recession and a bit below before it finally rises. While in the L-shape the global economy is experiencing a recession, then it takes a very long time to recover.
As a result, the yen has become the target of market participants today. "The yen has been the main currency since the (US-China) crisis began, and will continue to be so," said Kit Jukes, head of foreign exchange strategy at Societe Generale, as reported by Reuters.
