• USD/JPY lacks any firm directional bias and oscillates in a narrow range on Monday.
• The underlying bearish sentiment around the USD continues to act as a headwind.
• An uptick in the US bond yields, the easing of COVID-19 curbs in China offer support.

The USD/JPY pair struggles to gain any meaningful traction on Monday and oscillates in a narrow trading band around the very important 200-day SMA through the early European session. The pair is currently trading just above mid-134.00s and remains well within the striking distance of a four-month low set on Friday amid sustained US Dollar selling.

As investors look past the upbeat US monthly jobs report released on Friday, expectations that the Fed will slow the pace of its policy tightening continue to weigh on the buck. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, sinks to its lowest level since late June. Apart from this, the recent hawkish comments by Bank of Japan (BoJ) board member Asahi Noguchi underpins the Japanese Yen and act as a headwind for the USD/JPY pair.

That said, the latest optimism over the easing of COVID-19 restrictions in several Chinese cities keeps a lid on any meaningful gains for the safe-haven JPY. Furthermore, a generally positive tone around the US Treasury bond yields offers some support to the USD/JPY pair and helps limit the downside, at least for the time being. The mixed fundamental backdrop is holding back traders from placing aggressive bets and leading to subdued/range-bound price action on the first day of a new week.

From a technical perspective, Friday's breakdown below the 200 DMA for the first time since February 2021 could be seen as a fresh trigger for bearish traders. Furthermore, the USD/JPY pair's inability to attract any buyers or register a meaningful recovery adds credence to the negative outlook. This, in turn, suggests that the path of least resistance for the major is down and supports prospects for an extension of the recent sharp pullback from a 32-year peak touched in October.

Market participants now look forward to the US economic docket, highlighting the release of the ISM Services PMI for a fresh impetus later during the early North American session. Apart from this, the US bond yields will influence the USD price dynamics. Traders will further take cues from the broader risk sentiment to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch