CAD/JPY

d 180 pips.

The CAD/JPY has already reclaimed about 50% of its decline from the middle of March to the middle of April and the CAD has strengthened on the back of a more hawkish central bank and the market pricing in a rate hike later this year by the Bank of Canada.
As a result the Canadian dollar has a stronger fundamental bias and if we have a fundamental catalyst where the BOJ does announced further easing – especially the higher amount of ¥10 trillion – the pair here is also likely to push higher towards the 84 level and then the highs from March around 84.90.
We should remember that these moves could be quite swift – similar to what we saw in the middle of February when the Bank of Japan first announced its inflation target and increase its bond purchase program – and we would also want to be cognizant of the sentiment factors which currently favors a weaker Japanese yen (looking at the action in S&P500 in Thursday’s NY session).

What if BOJ Doesn’t Ease?

If we do not see further easing from the Bank of Japan – which is a possibility – then we don’t necessarily have a reason to target these levels for either pair and we would have to trade the Japanese yen based on what is happening in equity and commodity markets and general risk appetite.
In fact the Japanese yen will likely strengthen as the BOJ would lose credibility from market participants that it is determinant to meet its inflation target (of 1%). We would however target some other currencies to long the JPY against – perhaps theEUR or AUD as they have a weaker fundamental bias currently. But, even the GBP and CAD are likely to weaken vs the JPY in such a scenario.