USD/JPY trims losses near 133.50 amid dicey yields, defensive BoJ talks, US GDP eyed

• USD/JPY bounces off intraday low to pare recent losses during three-day downtrend.
• BoJ Officials keep favoring easy money policy, push back the need to alter YCC.
• US House of Representatives passed a bill to kick-start debt ceiling negotiations.
• Market fears due to First Republic Bank’s performance can weigh on Yen pair ahead of US Q1 GDP.

USD/JPY picks up bids to consolidate recent losses around mid-133.00s as markets brace for the US Q1 GDP during early Thursday. Adding strength to the corrective bounce could be the cautious optimism surrounding the US debt ceiling extension and the Bank of Japan (BoJ) Officials’ defense of the current ultra-easy monetary policy.

Following the passages of the "Limit, Save, Grow Act", the White House spokesperson said that President Joe Biden has made clear this bill has no chance of becoming law. The same challenges the initial optimism surrounding the bill amid fears of long and difficult discussion on the key matter. Even so, Reuters said that the US House of Representatives on Wednesday narrowly passed a bill to raise the nation's $31.4 trillion debt ceiling, defying President Joe Biden by attaching sweeping spending cuts for the next decade.

It should be noted that former BoJ Deputy Governor Masazumi Wakatabe recently mentioned that he will be surprised if the BoJ changes Yield Curve Control (YCC) on Friday. Previously, Bank of Japan´s (BoJ) Governor Kazuo Ueda spoke in the Japanese Parliament, known as Diet, while saying that the risk of a rise in inflation driven by lost of market trust in Japan's finances low for now. The policymaker also tried to tame talks of inflation woes and indirectly suggests no change in this week’s monetary policy meeting, not even surrounding the YCC.

Elsewhere, mixed US data and equity market performance also trouble the USD/JPY pair as the US Durable Goods Orders rose but the details of the Consumer Confidence eased. Furthermore, the tech giants allowed Nasdaq to remain firmer but the escalating fears from the First Republic Bank (FRB), due to another 20% share price fall on Wednesday following a 50% slump the previous day weigh on the sentiment.

Against this backdrop, US Treasury bond yields remain directionless while the S&P 500 Futures print mild gains of 0.20% around 4,083 by the press time, following a mixed close of Wall Street.

Looking forward, USD/JPY traders should pay attention to the risk catalysts, mainly surrounding the banks and US debt ceiling, while waiting for the US first quarter (Q1) Gross Domestic Product (GDP), expected to ease to 2.0% on an annualized basis versus 2.6% prior.

Technical analysis

A convergence of the previous support line from early April and a one-week-old resistance line, around 134.15, restricts the short-term recovery of the USD/JPY pair. The downside moves, however, remain elusive beyond a one-month-old ascending trend line, close to 132.65.