CAD/JPY Weaks for Third Consecutive Day After BoC Cuts Interest Rates, Oil Weak

• CAD/JPY weakens as BoC cuts interest rates for third consecutive meeting.
• The yen is gaining support from a rise in real wages in Japan, which is supporting the growth outlook.
• A drop in the price of WTI crude below $70.00 per barrel further affects CAD/JPY.

CAD/JPY is trading a quarter of a percent lower in the 106.10s on Thursday as the Canadian dollar (CAD) weakens on lower oil prices – crude is the country’s biggest export – and expectations that the Bank of Canada (BoC) will continue to cuts interest rates after a 0.25% cut at the September meeting. Lower interest rates are negative for a currency because they reduce foreign capital inflows.

CAD/JPY is posting a third straight day of losses after falling sharply on Wednesday following the BoC’s decision to cut interest rates by 0.25% for a third consecutive meeting amid lower inflation and growth concerns.

In his post-meeting news conference, Governor Tiff Macklem struck a dovish tone, saying “We must increasingly guard against the risk of the economy being too weak and inflation falling too far.” Adding: “If inflation continues to decline broadly, in line with our July forecast, it is reasonable to expect further rate cuts.”

CAD/JPY fell further after data from Japan showed real wages rising for a second straight month in July and bolstered expectations that the Bank of Japan (BoJ) will raise interest rates again before the end of of the year. Inflation-adjusted real wages in Japan rose 0.4 percent year-on-year in July as total cash income rose 3.6 percent.

BoJ Governing Council member Hajime Takata struck a moderate, data-driven tone in a speech on Thursday morning that will have tempered downside for CAD/JPY. Takata said “based on our hearings we expect more rate hikes in October,” but qualified that by adding, “although that was when the yen was weakening.”

Apart from that, Takata remained ambivalent saying: “We (BoJ) don’t have a preconceived idea about the pace of rate hikes or whether we will raise rates multiple times” and adding: “We have no choice but to review at each policy meeting how market movements affect corporate balance sheets, earnings and risks to the economy.”

CAD/JPY continued to lose ground after WTI crude fell below the $70.00 level amid rumors of an OPEC+ production increase and a slowdown in China. Low oil prices are negative for CAD as it is a major exporter of crude but positive for Japan which is a major oil importer.