The Canadian dollar declined against the yen following reports of an unexpected decline in building permits in January. The better-than-anticipated increase in Japan’s unemployment rate also stoked up the Canadian dollar’s sell-off. Overall, the CAD/JPY pair declined from a high of 100.60 to a low of 99.67 in the final trading session of last week.
According to the data published by the Statistics Bureau, Tokyo’s core consumer price index, which excludes fresh food, grew by 3.30% y-o-y in February, declining from a 42-year high of 4.30% in the previous month and in line with market expectations. Notably, for the ninth month in a row, the reported reading was higher than the Bank of Japan’s targeted inflation rate of 2%.
Overall, Japan’s core consumer prices increased 4.20% y-o-y in January, speeding at the quickest rate in 41 years as enterprises transferred the highest input costs to households.
For the first time in over a year, Tokyo’s inflation eased as stepped-up government subsidies eclipsed a robust price trend that will influence the Bank of Japan’s policy under the probable supervision of Kazuo Ueda.
According to Japan’s Statistics Bureau, the country’s unemployment rate inched lower to 2.40% in January from 2.50% in the previous month. Economists had anticipated the unemployment rate to remain unchanged at 2.50%. The reported reading was the lowest since February 2020 as the number of unemployed fell by 40,000 to 1.67 million while employment rose by 180,000 to 67.44 million.
The jobs-to-applications ratio was unaltered at 1.35 in January, remaining at the highest level since March 2020 for the fourth month in a row.
The number of employed people declined by 220,000 to 41.02 million. The labor force participation rate was 62.20% in January, unaltered from the comparable period last year. In January 2022, Japan’s unemployment rate was 2.8%.
According to Statistics Canada, the country’s building permits fell by 4% m-o-m in January to C$9.80 billion, following a 7.70% decline in the previous month and disappointing economists who were expecting a rise in the building permits by 1.70%.
The residential sector fell by 6.60% to C$6.10 billion in January, while the non-residential sector stood almost stable, rising only 0.70% to C$3.70 billion. In the non-residential sector, gains in the commercial element offset losses in both the institutional and industrial elements. The value of building permits in the industrial component fell by 3.90% in January, with six provinces recording declines.
In a separate news release, Statistics Canada stated that labor productivity fell by 0.50% q-o-q in the December 2022 quarter following a 0.30% decrease in the September 2022 quarter. Economists had anticipated only 0.20% growth in the reported period. The reported figure reflects a third successive quarterly decline.
For the first time in six quarters, business output decreased while growth in hours worked slowed down. Also, business output fell for the first time in six quarters.
Overall, productivity fell in seven out of 16 key industry sectors and was unaltered in manufacturing and professional services. The unit labor costs of Canadian businesses rose for the fourth successive quarter, reflecting a rise of 1.10% in the fourth quarter.
On average, for the entire of 2022, the labor productivity of Canadian companies fell by 1.50%, following a historic fall of 6.20% in 2021. Likewise, in 2022, productivity in service-producing businesses fell by 2%, partly offset by a 0.90% rise in goods-producing companies.
The weak Canadian building permit data is expected to keep the CAD/JPY pair slightly bearish in the short term.
The historical price chart indicates that the CAD/JPY pair is descending after testing the resistance at 100.60. The next support is anticipated only near 97.20. Additionally, the currency pair is trading below its 50-day moving average while the stochastic indicator is in the bearish zone. Therefore, we anticipate the CAD/JPY pair to remain in a downtrend in the days ahead.
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