The Japanese Yen remained the worst performing major currency of 2021 on Tuesday but could be set to narrow the gap between itself and comparable rivals over the coming weeks if BMO Capital Markets is right to be concerned about the prospect of a 'short squeeze' playing out this month.
The Japanese Yen was a contender for the top spot among currencies this week by Wednesday having reached oversold levels that have helped put the Sterling-Yen exchange rate onto its back foot, although multiple analysts suggest GBP/JPY still has scope to fall further in the short-term.
The Pound-to-Yen exchange rate little changed On Wednesday after having stalled near to three-year highs earlier this week, leaving the British currency's rally and GBP/JPY's outlook hinged on whether central banks are able to deliver a trifecta of supportive policy announcements ahead of the weekend.
The Japanese Yen outperformed on Friday, rising against all major currencies but especially those within its 'funding currency' peer group, after the Bank of Japan (BoJ) appeared to covet higher bond yields through what may be eligible for description as an interest rate rise in diguise.
The Pound-to-Yen exchange rate could rally ahead of other Sterling pairs in the coming weeks and months if a recovery of the British currency coincides with resilience in American bonds yields or any other factor that prevents the Japanese currency itself from strengthening against the U.S. Dollar.