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USD/JPY has finally broken higher after weeks of compression, with easing bearish sentiment towards the Japanese yen adding fuel to the rally. While the US dollar led the move, the technical backdrop also favours further upside for GBP/JPY, although crude oil prices remain a key variable for CAD/JPY bears.

Source: LSEG

View related analysis:

US Dollar Bulls Lose Momentum, Commodity FX Defies Positioning | COT Report Australian Dollar Outlook: AUD/USD Bulls Hold the Edge Ahead of Jobs Data Nasdaq Could Look to KOSPI for Directional Clues Beyond Earnings Canadian Dollar Slides as Soft CPI and Trump Tariffs Lift USD/CAD USD/JPY Leads as Japanese Yen Weakness Keeps GBP/JPY and CAD/JPY in Focus It only seemed a matter of time before volatility erupted on USD/JPY, given the compression pattern beneath its 39-year high. Momentum ultimately broke to the upside, helped by a strong session for the US dollar amid the latest flare-up in Middle East tensions.

As noted in this week’s COT report, net-short exposure to the Japanese yen has moved away from a sentiment extreme. That removes some pressure from bearish yen positions and gives the USD/JPY breakout more breathing room. The question now is whether other currencies, such as the British pound or Canadian dollar could also take advantage of the weaker yen.

Source: CFTC (COT), LSEG

For traders wanting a deeper understanding of futures positioning, I’ve also published a guide on how to read and interpret weekly COT data in forex markets.

USD/JPY Tests Trendline Resistance After Breakout Regular readers will know I am not an advocate of trendlines, but I concede they deserve attention from time to time. In this case, a trendline projected from the January high coincides with Tuesday's high, making it a valid interim resistance level. It is also one that could break, given the strength of the move out of the compression pattern.

The monthly R1 pivot (163.72) and 165.30 may be the next resistance levels for bulls if the trendline breaks. That said, prices appear stretched on the 1-hour chart, while bearish RSI divergences have formed in overbought territory, raising the potential for a near-term pullback. Bulls could look to buy dips within Tuesday's range, with 163 potentially providing support.

Source: ICE, TradingView

GBP/JPY Bulls Eye 219 as British Pound Holds the Advantage The GBP/JPY uptrend on the daily chart speaks for itself, with bullish momentum accelerating from the June low. Prices have retraced to the 10-day EMA and the monthly R2 pivot, while Tuesday's wide-legged doji has caught my eye as it hints at a swing low forming within a strong uptrend.

Price action on the 1-hour chart appears corrective, given the overlapping nature of the decline. Moreover, elevated volumes accompanied the swing low, reinforcing my suspicion of bullish accumulation above 217.50. GBP/JPY is now attempting to form a higher low around the 218.00 handle and the weekly pivot point.

Ultimately, my near-term bias for the British pound against the Japanese yen remains bullish while prices hold above Tuesday's low, with a move to 219.00 as the minimum upside target. Note the July 2007 low at 219.036 and the 219.61 high as additional resistance levels ahead of the weekly R1 pivot just below 220.00.

Source: ICE, TradingView

CAD/JPY Reversal Pattern Faces Crude Oil Headwind The daily chart shows an evening star pattern (a three-bar bearish reversal) forming around the 116.00 handle, warning that a top may be in place. Tuesday's small bullish inside day represents a lacklustre attempt by bulls to reclaim lost ground, and the fact it closed around the monthly R1 pivot suggests CAD/JPY could be gearing up for another leg lower.

However, rising crude oil prices are a fly in the ointment for CAD/JPY bears. As a major oil exporter, Canada typically benefits from higher crude oil prices, which can underpin the Canadian dollar against the Japanese yen. If crude oil continues to rally, it could support CAD/JPY, or at least make life more difficult for bears. Conversely, if Middle East tensions ease and crude oil prices retreat, it could pave the way for the next leg lower in CAD/JPY.

A break below the weekly pivot point (115.31) would bring the weekly S1 level and monthly pivot point into focus near 114.50.

Source: ICE, TradingView

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

Summary:

CAD/JPY is on a winning streak despite a notable spike in geopolitical risk following renewed US-Iran hostilities. Why has the yen lost it? The CAD/JPY currency pair has recovered from an 18-week low of 112.96 on July 4th, achieving a four-day winning streak and surpassing 115.70. Typically, global markets see investors move away from cyclical currencies towards safe-haven assets like the Japanese yen during periods of geopolitical tension.

However, the yen is currently weakening while the loonie gains. This analysis explores why the CAD/JPY pair is deviating from traditional safe-haven behavior and what factors might influence its near-term performance.

Can the Yen Challenge the Canadian Dollar? Rising oil prices generally benefit the Canadian dollar, reflecting Canada’s position as a significant energy exporter. Recent geopolitical events in the Middle East have pushed crude oil prices higher, providing fundamental support for the Canadian dollar.

Meanwhile, the Japanese yen, often considered a safe-haven currency, faces its own challenges. Persistent interest rate differences and the Bank of Japan’s cautious monetary policy limit the yen’s attractiveness compared to currencies like the Canadian dollar, which offer higher yields.

While the yen has weakened against the US dollar, the CAD/JPY pair is benefiting from Canada’s resource-based economy. A continued increase in oil prices could further favor the Canadian dollar, although any easing of geopolitical tensions might reduce this advantage.

The Yen’s Deeper Problem Oil aside, the yen’s been fighting a losing battle for months. The Bank of Japan lifted its policy rate to its highest level since 1995, yet the currency still slid to its weakest point since 1986 by late June. Tokyo’s Ministry of Finance stepped in with a record ¥11.7 trillion between late April and May, but that effect vanished within six weeks.

Lazard Asset Management points out that the usual explanation, the US-Japan interest rate gap, has actually narrowed recently. That would normally support the yen. Instead, rising inflation expectations and worries about Japan’s ballooning public debt, now close to 240% of GDP, seem to be the main problem, keeping the currency under pressure no matter what.

Beyond the oil slick, the broader trajectory of the CAD/JPY is being shaped by monetary policy differentials. On July 15, 2026, the Bank of Canada decided to keep its main interest rate at 2.25%. This makes sense because Canada’s economy grew by 2.5% in the second quarter, and the job market is getting tighter. So, the Bank of Canada doesn’t feel any pressure to lower interest rates right now.

Positioning Strategies for Investors Considering the Japanese yen is generally weak and oil prices are helping the Canadian dollar in the short term, the overall trend suggests that CAD/JPY could go up. Predictions show it might climb a bit more in the near future, although some models suggest it might eventually settle back down.

However, just betting on this upward trend has a risk of intervention. Japanese officials have shown they’re ready to step in to influence the market, even if their actions haven’t always had a lasting effect.

Instead of treating this as a sure thing, it seems smarter to be cautious with how much you invest, take smaller positions, and keep an eye out for any signs that the Bank of Japan or the Ministry of Finance might step in.

Why has CAD/JPY shown recent strength?

Gains in oil prices from US-Iran tensions have supported the commodity-linked Canadian dollar against the yen.

Has Bank of Japan intervention helped the yen?

Bank of Japan intervention provided only temporary support for the yen. Record intervention in April-May 2026 briefly boosted the yen, but its weakness soon resumed.

How should investors approach CAD/JPY currently?

They should favor the broader uptrend but size positions cautiously. It is advisable to monitor intervention risks and developments in the Middle East rather than assuming continued, unchecked momentum.