Recently, the CAD/JPY exchange rate has shown notable fluctuations, trading at 112.9, which is 2.9% above its three-month average of 109.7. This rise can be attributed to a combination of factors impacting both currencies, particularly oil prices and monetary policy shifts from the respective central banks.
The Canadian dollar (CAD) has seen recent strengths influenced by rising oil prices, which are critical to Canada's energy-export-driven economy. Oil prices increased by 1.5% recently, benefiting the CAD even amid a backdrop where prices have been volatile, trading 6.5% below their three-month average. Additionally, Canada reported strong GDP growth of 2.6% in Q3, boosting investor confidence in the loonie, while the Bank of Canada’s decision to cut interest rates by 25 basis points may have tempered some of these gains by signaling an easing stance in monetary policy. Economists note that despite these gains, ongoing contraction in the manufacturing sector could pose challenges.
Conversely, the Japanese yen (JPY) is facing pressures stemming from the Bank of Japan's (BOJ) potential interest rate hike from 0.5% to 0.75%. This would be the first increase since January 2025, as the BOJ aims to combat inflation concerns. However, uncertainties remain regarding the future trajectory of interest rates, compounded by the yen's persistent weakness, which is raising alarms about its potential economic impacts, especially given Japan's weak economic fundamentals.
Analysts suggest that while the CAD has found some support from oil prices and robust economic indicators, the JPY’s outlook may remain cautious amid inflation and growth challenges. The performance of the CADJPY exchange rate will likely continue to be influenced by the dynamics of oil markets and the respective monetary policies outlined by the Bank of Canada and the Bank of Japan in the months ahead. As businesses consider international transactions, monitoring these currency trends and economic indicators will be crucial for managing their exposure effectively.
