CAD/JPY could strengthen as the Canadian economy benefits from rising commodity prices, while Japan struggles with the pandemic. Against that background, forex traders in the Canadian dollar and Yen will be mulling over recent economic and monetary news, eyeing possible strengthening of the Canadian dollar against the Japanese Yen.
The Bank of Japan’s two-day meeting ended on Friday (11 June) and it acted as economists expected by extending its lending measures, as it seeks to shore up support for businesses struggling with the impact of the pandemic. Japan’s vaccine rollout lags that of other advanced economies.
Nevertheless, the central bank has been signposting a shift from aggressive stimulus policy, as seen in its tapering in purchases of ETFs.
The Bank of Japan left its main interest rate setting unchanged, and inflation data showing prices continuing to be pressured lower., although wholesale prices were reported last Thursday to have increased at their fastest pace in 13 years.
Bank of Canada sees inflation easing later this year
Last week the Canadian central bank left the interest rate unchanged at 0.25%.
Deputy Governor of the Bank of Canada Timothy Lane, speaking about the latest policy decisions, said: “The inflation story, though, is a bit more complicated than usual. Prices have rebounded from 2020 and, in some cases, have risen much higher. Inflation is now above our 2 percent target – around 3.5 percent.”
Lane continued: “This is mainly because inflation is measured by comparing today’s prices with those from last year. In this case, that’s when the pandemic caused prices to plummet.”
In line with the US Fed and other central banks, the deputy governor expects the inflation rate to ease by the end of the year. “We expect inflation to stay around 3 percent through the summer and then to ease later in the year as remaining slack in the economy pushes inflation down.”
CAD/JPY buying opportunity?
CAD/JPY is located at 90.392 at the time of writing. It has decreased a little in the short term even if the Bank of Canada has maintained its monetary policy unchanged on Wednesday.
On the other hand, the Yen was strong in the last days as the Nikkei stock index has slipped lower. CAD/JPY is pressuring the upper median line (uml) of the descending pitchfork and it could retest the weekly S1 (90.329).
The bias is still bullish as long as it stays above the S1 and above the immediate uptrend line. A false breakdown through these downside obstacles could signal that the pair could jump higher again.
Only a valid breakdown through the uptrend line could signal a deeper drop in the short term. We may have a good buying opportunity if CAD/JPY makes a new higher high, to jump and close above the 90.796 high.
Japan is to release its Revised Industrial Production on Monday. The economic indicator is expected to increase by 2.5% in April versus 2.5% in March. On the other hand, Canada will publish the Manufacturing Sales data which could increase by 3.0% versus 3.5% in the previous reporting period.
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