• USD/JPY shot to fresh multi-year tops during the early part of the trading action on Wednesday.
• The risk-on mood, a further widening of the US-Japanese bond yields weighed the safe-haven JPY.
• A subdued USD demand kept a lid on any further gains amid near-term overbought conditions.

The USD/JPY pair consolidated its recent gains to multi-year tops and seesawed between tepid gains/minor losses through the early European session. The pair was last seen trading just below mid-114.00s, nearly unchanged for the day.

Following the previous day's goodish rebound from sub-114.00 levels, the USD/JPY pair gained some positive traction during the early part of the trading action on Wednesday. The prevalent risk-on mood continued undermining the safe-haven Japanese yen, which was further pressured by the widening of the US-Japanese government bond yield differential.

The US bond yields resumed their uptrend that has been underway since late September when the Fed signalled that it would begin tapering its monthly bond purchases by the end of 2021. Adding to this, worries that the recent widespread rally in commodity prices will stoke inflation have been fueling speculation about a potential rate hike in 2022.

The prospects for an early policy tightening by the Fed pushed the yield on the benchmark 10-year US government bond to the highest level since May, around 1.672% on Wednesday. On the other hand, the yield on the 10-year Japanese government bond remained near zero due to the Bank of Japan's yield curve control policy.

The fundamental backdrop remains tilted in favour of bullish traders, though extremely overstretched conditions on short-term charts held investors from positioning for any further appreciating move. Apart from this, a subdued US dollar demand was seen as another factor that contributed to the USD/JPY pair's range-bound price action.

In the absence of any major market-moving economic releases from the US, traders will take cues from scheduled speeches by Chicago Fed President Charles Evans and Fed Governor Randal Quarles. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment might provide some impetus to the USD/JPY pair.

Technical levels to watch