The Canadian dollar has come under renewed selling pressure this week, weighed down by softer domestic economic data and its sensitivity to oil prices following the US takeover of Venezuela. At the same time, the Japanese yen has attracted safe-haven demand ahead of a US Supreme Court ruling on Trump’s tariffs. With no guarantee a decision is delivered before Friday’s close, the risk of weekend gaps or follow-through moves into next week remains elevated.
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Chart prepared by Matt Simpson - Source: LSEG
CAD/JPY Outlook Ahead of Canada Jobs Data and Trump Tariff Decision
My base case is that tariffs are either upheld or kicked back to Congress, with the probability of them being ruled illegal relatively low. Markets have already adjusted to a tariff-inclusive backdrop, meaning any knee-jerk risk-off reaction should be limited before broader trends reassert themselves. A ruling that strikes tariffs down outright would be the true outlier, potentially triggering a sharp risk-on response as markets price freer trade and unwind parts of Trump’s tariff framework. For now, the balance of risks keeps CAD/JPY vulnerable rather than signalling a full trend reversal.
Traders should also be mindful that Canada’s employment report is released alongside US nonfarm payrolls today, increasing the risk of heightened volatility in CAD/JPY. Even so, it may not take much of a positive surprise to stabilise the Canadian dollar into the weekend, given the pair has already retraced around 1.6% from its cycle highs. A corrective bounce into next week therefore remains a plausible scenario.
CAD/JPY Technical Analysis: Canadian Dollar vs Japanese Yen
The daily chart shows CAD/JPY printed an indecision candle on Thursday around the 113 handle, close to its monthly pivot point and the high-volume node (HVN) from December’s consolidation range. With the daily RSI (2) deeply oversold at the close, the near-term bias favours at least a modest rebound.
The 114 handle, near the 114.23 HVN, may act as an initial upside target for bulls. A broader risk-on backdrop next week could reopen the door to a push toward cycle highs. That said, bearish signals on the weekly timeframe suggest any upside is more likely corrective unless momentum improves decisively.
Chart analysis by Matt Simpson - Source: TradingView
CAD/JPY Technical Analysis: Weekly Perspective
The Canadian dollar enjoyed a strong rally against the Japanese yen in Q4, though mean reversion has since taken hold. CAD/JPY is on track for its second consecutive weekly decline after last week’s bearish inside week flagged hesitation near the highs. RSI readings were also overbought at the cycle peak, with prices extended above their short-term moving averages.
A deeper pullback toward the 2024 high at 111.56, near monthly S1, cannot be ruled out. However, a decisive break below this level would likely require renewed optimism around Bank of Japan rate hikes alongside a genuine risk-off shock — such as Trump’s tariffs being struck down outright. For now, the pullback looks more like a healthy correction within a broader uptrend.
Chart analysis by Matt Simpson - Source: TradingView
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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