CAD/JPY remains firmly around 98.30 on risk-on mood and BoJ-BoC divergence

• The Canadian dollar extends its advance vs. the Japanese yen, in the market mood for the second day in a row.
• High oil prices dragged the CAD/JPY up as the Russo-Ukraine conflict persists.
• The divergence between the Bank of Japan and the Bank of Canada favors the CAD.
• CAD/JPY Price Forecast: Upward biased, but downside risks remain unless CAD bulls reclaim 99.00.

The CAD/JPY began the week on a higher note, though, as the Asian Pac session begins, the pair edges lower some 0.03%, despite a positive risk-on mood portrayed by Asian equity futures underpinned to a higher open. At the time of writing, the CAD/JPY is trading at 98.33.

Geopolitical issues around the Russian-Ukraine war began the week in the front seat and are weighing on energy prices. Developments in the weekend report that Russian troops killed civilians in Bucha and other towns were condemned by Germany and France, which in response expelled Russian diplomats. At the same time, US President Joe Biden said that Russian President Vladimir Putin could face a war crimes trial.

Aside from geopolitical issues, oil prices rose, as portrayed by Western Texas Intermediate (WTI’s), which rose by 4.33%, back above $100, a tailwind for the CAD/JPY. However, it has been reported that Iran is pumping oil production to its pre-sanction levels. Furthermore, the US State Department said they believe there is an opportunity to overcome the remaining differences in Iran's nuclear talks.

If the nuclear talks resume, that could be a headwind for the CAD/JPY because that news would drag oil prices down, benefitting JPY bulls.

Meanwhile, central bank policy divergence between the Bank of Japan (BoJ) and the Bank of Canada (BoC) favors the latter.

The Bank of Japan pledged to buy five and 10-year JGB bonds as the bank exerts its Yield Curve Control (YCC) targeted at 25 bps, as the BoJ aims to achieve its inflation target of 2%. Its posture would remain dovish unless BoJ Governor Kuroda expresses some worries about the Japanese yen value.

On March 25, BoC Deputy Governor Sharon Kozicki said: “Returning inflation to the 2% target is our primary focus and unwavering commitment. We have taken action and will continue to do so to return inflation to target, and we are prepared to act forcefully.”

Money market futures immediately priced in two subsequent 50-bps increases, and with the BoC Interest Rate Decision looming in the next week, the CAD might remain buoyant into the meeting.

Therefore, the CAD/JPY in the near term is upward biased, though it would be subject to market sentiment.

CAD/JPY Price Forecast: Technical outlook

The CAD/JPY is upward biased, though it has faced solid resistance around the 98.40s area. It is upward biased in the near term, but with the Relative Strength Index (RSI) at 73.48 in the overbought zone, it suggests a correction looms before resuming the uptrend.

That said, the CAD/JPY first resistance would be 98.46. A breach of the latter would expose essential resistance levels like March 29 daily high at 99.22, followed by March 28 YTD high at 100.19.

On the downside, the CAD/JPY first support would be 98.00. Once cleared, the next support would be 97.61, followed by 97.05.

Technical levels to watch