Canadian Dollar Risks Losing Support of Japan as Constitution Crisis Heats Up
NEW YORK -- With Canada's constitutional crisis near the boiling point, the Canadian dollar runs the risk of losing some of its most loyal supporters in recent years: the Japanese.</br></br>Because of persistently high Canadian interest rates, traders say, the Japanese have faithfully helped rescue the Canadian dollar during hard times in the past -- even when those high rates started to upset the economy. In the bond market Friday, the 10-year Canadian government bond yielded 10.67%, well above the 8.44% yield on the equivalent U.S. Treasury issue.</br></br>But some currency specialists say Canada's rates might lose some of their appeal if the nation's political scene gets any stormier. Manitoba and Newfoundland have yet to approve the so-called Meech Lake accord that all 10 Canadian provinces must ratify by Saturday. The accord, negotiated three years ago at Meech Lake, Quebec, would recognize Quebec as a "distinct society" within Canada. Quebec has threatened to secede if the pact doesn't pass.</br></br>If the worst-case scenario is borne out and Quebec announces a quest for independence, knee-jerk sales are expected to jolt all of Canada's financial markets.</br></br>In the case of Japanese investment, however, more worrisome is the possibility that capital flow from Japan will dry up over the long run, leaving the Canadian dollar particularly vulnerable, some analysts say.