USD/JPY jumps back closer to YTD top, sits above 135.00 ahead of US PCE Price Index

• USD/JPY reverses an intraday slide to the 134.00 mark and rallies back closer to the YTD peak.
• BoJ Governor candidate Ueda's dovish remarks weigh on JPY and act as a tailwind for the pair.
• Bets for additional rate hikes by the Fed underpin the USD and remain supportive of the move.
• Traders now look forward to the US Core PCE Price Index before placing fresh directional bets.

The USD/JPY pair rallies around 120 pips from the 134.00 neighbourhood on Friday and climbs back closer to a two-month high touched the previous day. The pair currently trades above the 135.00 psychological mark and seems poised to build on the positive momentum.

The Japanese Yen (JPY) did get a minor boost on the last day of the week after data released earlier today showed that Japan's core consumer inflation hit a new 41-year high in January. The initial reaction, however, fades rather quickly in reaction to the incoming Bank of Japan (BoJ) Governor Kazuo Ueda's dovish remarks. Addressing the parliament for the first time since his nomination, Ueda that the recent rise in consumer inflation was driven mostly by surging import costs of raw materials, rather than strong domestic demand.

Ueda added that the BoJ's current ultra-loose monetary policy stance is a necessary and appropriate means to steadily meet the 2% target. In contrast, the Federal Reserve is expected to stick to its hawkish stance. In fact, the FOMC minutes released on Wednesday showed that officials were determined to raise interest rates further to fully gain control over inflation. This remains supportive of elevated US Treasury bond yields, which, in turn, keeps the US Dollar pinned near a multi-week high and further lends support to the USD/JPY pair.

The aforementioned fundamental backdrop supports prospects for a further near-term appreciating move. The USD bulls, however, might refrain from placing aggressive bets and wait for the release of the US Core PCE Price Index - the Fed's preferred inflation gauge. The data should influence expectations above the Fed's future rate-hike path and drive the USD demand, providing some impetus to the USD/JPY pair. Nevertheless, spot prices remain on track to register gains for the second straight week and the fourth week in the previous five.

Technical levels to watch