USD/JPY builds on strong intraday rally, climbs to 136.00 on stronger US PCE Price Index

• USD/JPY rallies nearly 200 pips from the daily low and draws support from a combination of factors.
• BoJ Governor nominee Ueda's dovish remarks weigh on JPY and boost the pair amid a stronger USD.
• The stronger-than-expected US PCE Price index provides an additional lift to the buck and the major.

The USD/JPY pair is seen building on its strong intraday rally from the 134.00 mark and scaling higher through the early North American session. The momentum picks up pace in reaction to the stronger-than-expected US PCE Price Index and lifts spot prices to 136.00 neighbourhood, or the highest level since December 20.

In fact, the US Bureau of Economic Analysis reported this Friday inflation in the US, as measured by the Personal Consumption Expenditures (PCE) Price Index, rose 0.6% in January. Furthermore, the yearly rate edged up to 5.4% from the 5.3% previous, beating estimates for a fall to 4.9%. Additional detail of the report showed that Core PCE Price Index - the Fed's preferred inflation gauge - climbed 0.6% MoM and 4.7% over the past twelve months, again surpassing expectations.

The data indicate that inflation isn't coming down quite as fast as hoped and reaffirms expectations for further policy tightening by the Fed. Moreover, the recent upbeat US macro data pointed to an economy that remains resilient despite rising borrowing costs and should allow the Fed to stick to its hawkish stance. This, in turn, remains supportive of elevated US Treasury bond yields, which keeps the US Dollar near a multi-week high and acts as a tailwind for the USD/JPY.

The Japanese Yen (JPY), on the other hand, is weighed down by dovish remarks by the incoming Bank of Japan (BoJ) Governor Kazuo Ueda. In fact, Ueda said that the BoJ's current ultra-loose monetary policy stance is a necessary and appropriate means to steadily meet the 2% target. This is seen as another factor boosting the USD/JPY pair, though the prevalent risk-off mood could underpin the safe-haven JPY and keep a lid on any further gains, at least for the time being.

Technical levels to watch