The USD/JPY pair traded close to the midpoint of its daily range on Wednesday, fluctuating between 141.895 and 143.95, supported by rising U.S. Treasury yields and strengthening equity markets. Improved risk sentiment, a steeper U.S. Treasury yield curve, and stronger commodity prices have kept yen crosses well-supported. However, despite these favorable conditions, traders are still hesitant to make significant bullish moves in USD/JPY.

The U.S. dollar’s sharp but uneven gains against the yen have been driven primarily by U.S. economic data, with a notable uptick since the pair reached a year-to-date low of 139.58 on September 16. While this rise is seen as an oversold correction, it targets the bottom of an expanding Ichimoku cloud, currently positioned at 148.62. However, the ascent has been far from smooth, as expectations of a Bank of Japan (BOJ) rate hike and dollar sales during Asian trading hours have caused volatility in the pair’s trajectory.

Looking ahead, the focus is on the BOJ’s upcoming meeting on Friday, where no major policy changes are expected. The central bank is widely anticipated to keep rates unchanged at 0.25%, but market participants are keeping an eye on August’s core Consumer Price Index (CPI), which is forecast to rise to 2.8%. Any signs of further inflationary pressure could influence future BOJ decisions, though the central bank is expected to remain cautious until after Japan’s ruling Liberal Democratic Party’s leadership election on September 27. Meanwhile, the People’s Bank of China (PBOC) is expected to cut rates on Friday, contributing to ongoing discussions about rate divergence between the Chinese yuan and the yen.

In terms of technical analysis, USD/JPY has near-term support at the session low of 141.895, with additional support at the weekly Ichimoku cloud bottom at 141.31. On the upside, resistance stands at 143.95, the day’s high, followed by 144.20/22, the levels seen in early August after U.S. payroll data.

Despite the recent gains, USD/JPY bulls remain reluctant to fully commit, with the pair still needing to surpass the 145 level to attract significant buying interest. A smoother path for the pair would require a reduction in volatility and more sustained optimism about the U.S. dollar. This could come from stronger U.S. economic data, expected later this week, which may help reignite bullish momentum.

One factor weighing on the yen is Japan’s ongoing negative real interest rates, which have tempered enthusiasm for the currency. Custody bank data shows that yen buying has slowed, and options markets are beginning to fade dollar weakness. Front-end yen volatility has also drifted lower as major event risks pass, which could set the stage for a more stable USD/JPY rally in the near term.

For USD/JPY to break out of its current range and turn bearish sentiment around, a sustained move above the 145 level is necessary. If short-term moving averages begin to cross higher in the coming sessions, this could pave the way for a more extended rally. Until then, traders remain cautious, watching for the next major catalyst that could propel USD/JPY higher.