CAD/JPY scales 3-week peak as BoJ abandons negative rates

The CAD/JPY currency pair registered a fresh three-week high on Tuesday, after the Bank of Japan put an end to an eight-year period of negative interest rates and ahead of Canada’s CPI report.

The BoJ raised its short-term interest rate to 0%-0.1% from -0.1% at its March meeting, in line with market expectations.

It has been the first BoJ rate hike since 2007, as Japanese inflation had surpassed the central bank’s 2% objective and the largest companies in the country had agreed on a 5.28% wage raise – the largest increase in more than three decades.

The BoJ discontinued yield curve control for 10-year government bonds and also dropped the purchases of ETF and Japan real estate investment trusts.

Market players will now be on watch if more BoJ policy tightening lies ahead, since it could affect the Yen’s role as a funding currency for carry trades.

Meanwhile, on the macro data front, CAD traders now shift their focus to the February data on Canadian CPI inflation for more clues over the Bank of Canada’s future interest rate trajectory.

Annual headline consumer inflation in Canada probably picked up to 3.1% in February, according to market consensus, from 2.9% in January – the lowest rate since June 2023.

Earlier this month, the Bank of Canada left its target for the overnight rate intact at 5% and pledged to keep normalizing its balance sheet, with policy makers still concerned about risks regarding the inflation outlook.

Currency Pair Performance

As of 10:53 GMT on Tuesday the CAD/JPY currency pair was gaining 0.63% to trade at 110.895.

Earlier in the session, the minor Forex pair went up as high as 110.998. The latter has been the pair’s strongest level since February 28th (111.255).