• USD/JPY struggles to gain any meaningful traction and remains below the weekly high.
• Modest USD weakness turns out to be a key factor acting as a headwind for the major.
• The Fed-BoJ policy divergence, a positive risk tone undermines the JPY and offers support.

The USD/JPY pair fails to capitalize on the previous day's solid bounce from a nearly two-month low and seesaws between tepid gains/minor losses on Wednesday. Spot prices seem to have stabilized below the weekly high and held steady around the 133.25 region through the first half of the European session.

The US dollar meets with some supply amid a mixed performance around the US Treasury bond yields, which turns out to be a key factor acting as a headwind for the USD/JPY pair. That said, signs of stability in the equity markets, along with the Fed-Bank of Japan policy divergence, undermine the safe-haven Japanese yen and offer some support to the major.

It is worth recalling that several Fed officials hinted that more interest rate hikes are coming in the near term. In contrast, the Japanese central bank has repeatedly stuck to its dovish stance and called for continued monetary easing in the absence of wage growth. This, in turn, supports prospects for a further appreciating move for the USD/JPY pair.

Investors, however, seem reluctant and await a fresh catalyst before positioning for the next leg of a directional move. Hence, the focus would remain glued to the release of the closely-watched US monthly jobs report - popularly known as NFP on Friday. The data would play a key role in influencing the USD and determining the near-term trajectory for the USD/JPY pair.

In the meantime, traders on Wednesday would take cues from the US ISM Services PMI, due later during the early North American session. Apart from this, the US bond yields, would drive the USD demand and provide some impetus to the USD/JPY pair. Traders would further take cues from the broader market risk sentiment to grab short-term opportunities.

Technical levels to watch