CAD/JPY Outlook: Slightly positive, but likely to move sideways, as the rate is just above its recent average and lacks a clear driver for significant movement.
Key drivers:
• Rate gap: The Bank of Canada's current policy rate is stable while the Bank of Japan is reducing bond purchases, suggesting a divergence that may eventually favor the CAD.
• Risk/commodities: The Canadian dollar benefits from rising oil prices, which are at recent highs, boosting revenues for Canada as a major oil exporter.
• One macro factor: Japan is facing fiscal policy concerns as Prime Minister Takaichi proposes tax cuts ahead of elections, raising questions about fiscal sustainability.
Range: The CAD/JPY is likely to drift within its recent range, with occasional tests of extremes, but overall stability is expected.
What could change it:
• Upside risk: A sustained increase in oil prices could push the CAD higher against the JPY.
• Downside risk: A significant intervention by the Bank of Japan could strengthen the yen and pressure the CAD.
