USD/JPY Rally Capped At Y111, Fourth Covid Wave Seen Taking Shape

Upbeat mood in the lead-up to U.S. Pres Biden's spending announcement, strong Chinese PMI data & month-/quarter-/FY-end flows conspired against the yen Wednesday. USD/JPY rallied toward the Y111.00 mark but stopped short of testing that round figure and eased off in European hours, extending its pullback over the final WMR fix of the quarter. The NY session saw a fresh uptick, but earlier intraday highs remained intact.

• The BoJ will trim the frequency of JGB purchases across all maturities in April, with total purchase sizes slashed for all tenors save for linkers.
• Yomiuri reported that the central gov't is planning to impose Covid-19 restrictions in Hyogo and Miyagi prefectures, amid fears that Japan is witnessing the fourth wave of infections. Earlier, Osaka has requested tightening curbs for three weeks. The Japan Times cited local media reports suggesting that new restrictions in Osaka could take effect as soon as today.
• USD/JPY last sits at Y110.75, marginally higher on the day. Above the psychological Y111.00 level would prompt bulls to take aim at Mar 26, 2020 high of Y111.30. Bears eye Mar 30 low of Y109.75 for initial support.
• All eyes are on the BoJ's Tankan Survey, with the final reading of Jibun Bank M'fing PMI due later in the day. Tankan is expected to show improvement in sentiment, partially owing to the impact of a weaker yen on domestic exporters.