USD/JPY extends post-Fed losses towards 135.00 on recession woes, US GDP in focus

• USD/JPY takes offers to refresh three-week low, down for the second consecutive day.
• Yen cheers Fed-inspired  USD weakness even as fears of economic slowdown in Japan, US dominates.
• BOJ’s Amamiya talks downbeat likely challenges for monetary policy easing.
• Updates from Biden-Xi talks, US GDP will be important for fresh impulse.

USD/JPY braces for the biggest daily loss in a week as sellers poke a four-month-old support line near 135.40 during Thursday’s Asian session. In doing so, the yen pair cheers the broad US dollar weakness after the US Federal Reserve (Fed) announcements amid fears of economic slowdown in the US and Japan. It’s worth noting that a cautious mood ahead of important data/events also weighs on the risk-barometer pair.

Earlier in the day, Japanese media circulated comments made by IMF Chief Economist Pierre-Olivier Gourinchas and renewed fears of further pain for the Asian economy. “Yen’s depreciation “will support Japanese growth” as it “makes Japanese products more competitive globally,” mentioned IMF Economist Gourinchas.

Elsewhere, Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya said, per Reuters, “BOJ must support the economy with monetary easing as recovery is not solid and wage development remains uncertain.”

It should be noted that yield curve inversion and cautious mood ahead of a meeting between US President Joe Biden and China President Xi Jinping, as well as the US data, also favor the USD/JPY bears of late.

A wider gap between the short-range bond coupons and the longer-term Treasury yields hints at economic pessimism. The US 10-year Treasury yields dropped nearly four basis points (bps) to 2.78% while the 2-year bond coupons slumped by 2.58% to 2.98% after the Fed’s 0.75% rate hike. Even so, the gap between the key US bond coupons remains the widest since 2000 and in turn hints at the US recession woes. It should be noted that the US 10-year Treasury yield pares recent losses around 2.78% and also remains pressured around 2.98% by the press time.

On Wednesday, the USD/JPY pair reversed from the weekly top and snapped a two-day uptrend as the US Federal Reserve (Fed) matched market forecasts by announcing a 75-bps rate increase. The underlying reason for the pair’s weakness could be attributed to Fed Chairman Jerome Powell’s speech as it signaled that the hawks are running out of fuel. Key comments from the Fed’s Powell were that the rates had reached neutrality, so there won't be any more forward guidance, as well as rates will be decided meeting by meeting.

Moving on, updates from the virtual meeting between US President Joe Biden and his Chinese counterpart Xi Jinping will join the recession fears to entertain intraday AUD/USD traders. However, major attention will be given to the flash readings of the US second quarter (Q2) Gross Domestic Product (GDP).

Also read: US GDP Preview: Win-win for the dollar? Economy's flirt with recession to boost the buck

Technical analysis

USD/JPY bears attack an upward sloping support line from early March, near 135.40, by extending the pullback from the 21-DMA resistance near 136.85.