The Canadian Dollar and the Japanese Yen are the sixth and third most widely-held reserve currencies on the planet, as well as two of the largest, most influential, and globalized economies on Earth, worth close to $7 trillion in combined GDP. Although CAD/JPY is a minor currency pair that does not get as much attention as some other currency pairs, this one is definitely worth your time. Read on to find out everything you need to know about CAD/JPY forex trading. 

What is CAD/JPY Forex Trading? 

If you want to know exactly what it means to trade CAD/JPY on global forex markets, you have come to the right place. As you may know, forex trading is simply the act of buying one currency in the hopes of capitalising on a change in its value relative to another currency. It can also describe the activity of speculating on the price of specific currency pairs in the hope of turning a profit.

Today, forex trading is the most popular form of financial activity in the world, with more than $5 trillion worth of foreign exchange trades completed every single day. When trading CAD/JPY, you are aiming to profit from incremental changes in the value of the CAD relative to the JPY and vice versa, usually throughout a single day.

For example, a forex trader might buy a specific amount of CAD/JPY at a fixed price, in the hopes that the value of the CAD will rise against the JPY a few hours later, after which point they would sell to make a profit. Although this might sound straightforward, trading CAD/JPY on the global currency market is a complex process that depends on a wide range of factors to get right. 

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History of the CAD/JPY Forex Pair 

The CAD, also known as the "loonie", is the currency of Canada, the world's ninth-largest economy and - crucially for forex traders - the wealthy northern neighbour of the world's largest and most powerful economy - the United States. Canada, as a former part of the British Empire, once used the British Pound Sterling (GBP) as its currency.

However, in the mid-19th century, the Canadian government decided to introduce a currency that was pegged to its southern neighbour, owing to its size and proximity. Thus, the Canadian dollar was born. The loonie did not unpeg from the US Dollar until the collapse of Bretton Woods in 1971 and it has remained a fully free-floating currency since then.

The Japanese Yen was borne out of an attempt to unite the fragmented economy of Meiji-era Japan back in 1871. In one fell swoop, the dozens of metal-based currencies circulating throughout Japan were replaced with one currency, which was initially valued on Spanish pieces of eight.

Since then, the Yen has gone through many ups and downs, as well as a series of devaluations that have often been intentionally orchestrated to make Japanese exports more competitive. To this day, the decisions of the Bank of Japan are by far the most influential on the value of the nonce.

There are many benefits to trading CAD/JPY, such as: 

  • A decent amount of intra-day volatility allows for potential gains without devastating loss.
  • A huge amount of financial knowledge and analytical resources are available to CAD/JPY forex traders. 
  • A strong correlation to commodity markets and major currency pairs allows for a strong degree of predictability. 

Factors that Influence CAD/JPY

A large number of factors influence the CAD/JPY currency pair, such as:

  • Bank of Canada (Banque du Canada) decisions: the Bank of Canada plays a heavy-handed and interventionist role in all monetary policy and all announcements and decisions it makes will immediately impact CAD/JPY.
  • Bank of Japan decisions: likewise, the BOJ actively tries to affect the value of the Yen with its policy, so keep an eye out. 
  • Certain commodity movements: the loonie is a commodity currency, which means that you need to pay attention to movements in gold, crude oil, and timber markets. 
  • US economic news: the US is the lynchpin of the Canadian economy, as well as Japan's largest export market. Any major developments in the US economy will always affect CAD/JPY. 

The Role of CAD

The loonie is the currency of one of the world's most prosperous and investor-friendly nations, as well as the country with the closest economic, political, and cultural links to the USA, the world's economic superpower. In addition, the CAD is one of the only developed country currencies that is strongly influenced by commodities prices, owing to the huge role of commodities in Canadian exports. 

The Role of JPY 

The JPY is the most traded and widely-held Asian currency by a significant margin, underscoring the importance of Japan to this region.

The JPY is also closely connected to global finance, owing to the fact that Tokyo is one of the world's largest and most important financial centres.

The past fifty years in Japan have been characterised by deflation and stagflation, and this is immediately evident when you look at a price chart for JPY. 

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  • Minimum Deposit: €100
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  • Listed on LSE
76.4% of retail CFD accounts lose money.

Strategies on forex trading CAD/JPY

Whether you are trading on margin or sticking to your own bankroll, you must have a solid forex trading strategy in place when trading CAD/JPY. While there are many strategies to consider, the main things to keep in mind are: 

  • Keep a close eye on commodity markets, as these have a disproportionate impact on CAD/JPY.
  • Make sure to trade at optimal times when liquidity is likely to be higher (see below). 
  • Focus on day trading strategies, as price movements in CAD/JPY are always very modest. 
  • Have a solid exit strategy and stop-loss in place to pre-empt and reduce losses. 

When to Buy or Sell CAD/JPY

CAD/JPY is a minor currency pair, meaning that a major drawback to trading it is that you may experience issues with liquidity. This means that owing to a lack of demand at certain times of the day, you might not be able to buy and sell CAD/JPY exactly when you want to.

Analysts will tell you that the best time to trade CAD/JPY is around 13:00 to 17:00 GMT, as this is when London and New York markets are both open and when you are likely to see maximum liquidity.

When trading CAD/JPY, you should be using the market data at your disposal to find out the most profitable times to buy and sell, to profit from incremental price changes.

For example, you might see rumours on Bloomberg that the BOJ is planning on reducing interest rates, which could reduce the value of JPY relative to CAD. In this case, you would want to hit BUY on CAD/JPY, as the price of CAD may rise against JPY in the future, at which point you can sell. 

How to Trade CAD/JPY

CAD/JPY forex trading is relatively straightforward since both currencies are hugely influential and trading in heavy volumes on daily forex markets. You will have no trouble finding up-to-date market insights and analytics on CAD/JPY, which can help you make informed trades.

The most important thing is to use a trusted and licensed UK forex broker platform that can execute buy and sell trades on your behalf in real-time and give you reliable advice and insights on CAD/JPY. 

Profit with CAD/JPY

Although not as profitable as some similar minor pairs such as GBP/JPY, there are regular moments of volatility in CAD/JPY forex trading. Being able to identify and pre-empt these moments is essential if you wish to make a profit.

More so than many other pairs, CAD/JPY's volatility is driven by central bank announcements, as well as significant shifts in major commodity markets. Obeying these market fundamentals will help you formulate a winning strategy.

Close Your Position to Take a Profit or Cut a Loss 

As with any form of real-money financial trading, knowing when to cut your losses and get out is essential. When day trading forex, a single sudden market shift can wipe out an entire day's worth of profits. That is why you should always have a stated exit strategy and ensure that your broker places a stop-loss on your account so that you can automatically close your position if your losses reach a certain point. 

Chose a Broker & Open an Account 

When trading a major currency pair such as CAD/JPY, choosing a trusted and licensed broker is essential. 

A quality broker will work with expert data and resources to help you make informed trades. They will offer direct market access to allow you to buy and sell at exactly the moment that you want to.

They will hold valid licenses from trusted financial regulatory bodies, to guarantee the safety of your money. To find out which brokers offer all of these crucial elements, make sure to check out our reviews of trusted forex brokers today.

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CAD/JPY Trading Risks 

While there are plenty of benefits to CAD/JPY forex trading, there are also some core risks you need to be aware of, such as:

Illiquidity risks: CAD/JPY is a minor currency pair with less demand than other pairs, meaning that you may experience significant liquidity problems throughout the day. 

Trading costs: owing to the difficulty of trading CAD/JPY at certain times, you will find that doing so can be very expensive, depending on the broker you are using.

Narrow trading windows: Canada and Japan are on opposite sides of the world and their market hours do not overlap. As such, you will find that the windows during the day where there is substantial movement on CAD/JPY are very narrow.

Conclusion

CAD/JPY might not get as much attention as many other pairs, but it is a very exciting pair that has a lot to offer. If you are looking to get away from overcrowded markets and trade with a pair that has all of the advantages of a major pair without all of the same drawbacks, CAD/JPY forex trading is definitely worth your time.