• CAD/JPY weakens as BoC cuts interest rates for third time in a row.
• The yen appreciates as real wages in Japan rise, improving economic growth prospects.
• The decline in WTI crude oil prices below USD 70.00 per barrel further weighs on the CAD/JPY pair.

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

The CAD/JPY pair is off for a third straight day, falling sharply on Wednesday after the Bank of Canada cut interest rates by 0.25% for the third time in a row, amid falling inflation and concerns about economic growth.

At a news conference after the meeting, Governor Tiff Macklem took a dovish tone, saying, “We need to increasingly guard against the risk that the economy is too weak and inflation falls too far,” adding, “If inflation continues to fall in a manner consistent with our July forecast, further rate cuts are reasonably expected.”

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 the year. Inflation-adjusted real wages in Japan rose 0.4% year over year in July, while total cash income rose 3.6%.

BoJ board member Hajime Takata struck a moderate, data-driven tone in a speech Thursday morning, but that will temper CAD/JPY’s declines. Takata said that “based on our hearings, we expect another rate hike in October,” but cautioned that “even though the yen was weakening at the time.”

Takata otherwise remained equivocal, saying: “We (the BoJ) do not have a set pace for interest rate hikes or whether we will raise interest rates multiple times,” and adding: “We have no choice but to analyze at each monetary policy meeting how market movements affect corporate balance sheets, earnings and risks to the economy.”

CAD/JPY fell further as WTI crude oil fell below $70.00 amid rumors of an OPEC+ production raise and a slowdown in China. Lower oil prices are negative for CAD as it is a major exporter of crude oil but positive for Japan as a major importer of crude oil.