After a 3-day consolidation, USD/JPY broke to the upside ahead of the Bank of Japan’s monetary policy announcement. No policy changes are expected but Japanese 10-year bond yields fell to their lowest level since 2016, which tells that investors are bracing for dovishness. The big question for the BoJ is the deterioration in trade warrants an adjustment in economic assessment. Japan reported its largest trade deficit in 6 years as exports fell for the second month in a row. While the Lunar New Year in China may have affected demand, this is the largest decline in exports to China in 2 years. Like many countries around the world, Japan is hit hard by slower global growth but the world’s third-largest economy is particularly vulnerable ahead of this year’s scheduled sales tax hike. However with the financial markets stabilizing, Federal Reserve slowing tightening and China adding stimulus, the outlook is not grim enough to warrant easing. We expect the BoJ to lower its assessment of output and exports and leave it at that, but that may still be enough to extend the slide in the Japanese yen and encourage gains in USD/JPY.