What is CAD/JPY?
The CAD/JPY is a popular currency pair that measures the value of the Canadian dollar (CAD) against that of the Japanese yen (JPY), or how many JPY it takes to buy one CAD. Although both are major currencies, with the yen being the third most traded currency in forex, following the United States dollar (USD) and euro (EUR), the pair is categorised as a minor currency pair as it does not include the US dollar. While the CAD's historically higher yields make it more vulnerable to swings in market sentiment, traders frequently use the CAD/JPY pair as an alternative to USD/JPY in times of market uncertainty.
What affects the price of the CAD/JPY pair?
The CAD/JPY pair is heavily influenced by commodity prices, particularly oil. Canada is a large supplier of raw goods and minerals such as crude oil, natural gas, gold, and wood; hence, the CAD is frequently referred to as a commodity currency. Japan, on the other hand, is heavily reliant on imports for many of its resources, particularly energy.
The CAD/JPY pair can also be influenced by general market sentiment. Japan has a substantial current account surplus and is known for its economic stability. The yen is defined by ultra-low interest rates designed to stimulate economic growth. Because it is possible to borrow yen at low-interest rates to finance higher-yielding ventures, the JPY has become the world's funding currency.
The Japanese yen is frequently viewed as a safe-haven asset, making it an appealing way to de-risk portfolios during periods of financial or economic uncertainty. When equity markets are under pressure, the JPY tends to rally.
Political conflicts with surrounding Asian countries, on the other hand, might lead to heightened market volatility, which can contribute to trade fluctuations in the currency's value.
What to watch out for when trading CAD/JPY?
CAD/JPY traders should keep an eye out for economic data releases such as GDP growth, employment data, inflation, and the trade balances of both Canada and Japan. Monitor announcements from the key influential bodies in the two countries. These include:
- Bank of Canada (BoC) and Bank of Japan (BoJ) announcements for interest rates and shifts in monetary policy
- Statistics Canada (StatCan) and the Statistics Bureau of Japan (SBJ) for data on Trade Balance, Unemployment Rate, Consumer Price Index (CPI), and Gross Domestic Product (GDP)
- Oil-related market events (OPEC meetings, oil inventory data)
