Bank of America enters short CAD/JPY trade amid tariff concerns

Bank of America strategists said Tuesday they are entering a short position on the Canadian dollar against the Japanese yen, citing growing uncertainty around the United States, Mexico and Canada trade agreement and potential intervention in Japan’s currency market.

The bank’s strategists, Alex Cohen, Shusuke Yamada and Marcus Boman, set a target of 112.00 yen per Canadian dollar from an entry point of 115.65, with a stop loss at 118.90.

"USMCA uncertainty has risen on reports of fresh 50% tariffs on select good," the strategists wrote.

The CAD/JPY pair traded 0.1% higher on the day at 115.59, gaining about 1% so far this month.

Bank of America said currency intervention is likely to prevent further weakening of the yen in the near term. The strategists also noted that Japanese public pension funds may increase their domestic allocations, which could support the yen.

"FX intervention is likely to act as a near-term backstop against further yen depreciation," they said. "Investors should also be mindful of the potential for Japanese public pension funds to increase domestic allocations."