Is the US yield curve losing its ability to forecast recessions?

One of the most reliable leading indicators of US economic activity over many years has been the difference in the price of the yield curve between 2 year and 10 year yields. The basic premise being that when the yield curve difference is close to or below zero (or flat), that economic activity is likely to contract, and that to a lesser extent, a steep or steepening yield curve is associated with economic expansion. - The charts below show US economic growth as measured by annual GDP (Top chart), the US 2 year 10 year yield curve (Middle chart) and level of Fed Funds (Bottom chart) from the mid 1970s. During this period, and indeed for many previous years , the 2 year 10 year yield curve has been an extremely reliable indicator and probably has a better record of predicting recessions than many seasoned economists. However, I am questioning whether its ability to predict changes in economic activity may be seriously impaired in the current low interest rate environment.

- It is important to consider what causes the shift in the value of the curve. - 2 year yields are far more responsive to changes in short-term rates than 10 year yields, thus when the Fed cuts rates the 2 year yield will drop far more sharply than the 10 year yield, and vice versa. The 10 year yield on the other hand will price to a far greater extent a normalisation of rates going forward, and hence will remain closer to historical levels. Thus an extended period of low rates is likely to lead to increased distortion in the yield curve, by keeping the level of 2 year yields lower for longer than 10 year yields, which stay closer to historical norms for longer. Hence in an extended period of abnormally low rates, this can give a false impression of economic strength, when in actual fact it may be a symptom of more prolonged economic weakness.I will use the example of the Japanese yield curve to reflect this. I have posted charts below showing the Japanese 2 year 10 year yield curve versus Japanese growth and the BOJ target rate. (I have a limited history available with regard to Japan, hence I can only revert to 1990 with these charts). In the early 1990s, when Japanese rates were generally at a higher level, a yield curve inversion signalled a period of oncoming economic weakness. However, since 1995 the BOJ target rate has never exceeded 0.5%, during this time Japan has entered 3 defined recessions, however the 2 year 10 year yield curve has not even come close to zero. Furthermore, the 2009 recession, by far the deepest of the past 20 years, registered a very moderate dip in the yield curve. It is also worth pointing out that the sharp drop in the Japanese 2 year 10 year curve in 1998 and 2003 was co-incidental rather than leading with regard to growth. - Unfortunately I do not have enough data points of Japanese yield curves and growth to know whether this is normal or not, however the US yield curve drop in value on the above charts, had always been a leading indicator, and in Japan the yield curve inversion in 1991 was a leading indicator.
I am not comparing the US economy to the Japanese economy, I am however pointing out that a prolonged period of low rates can reduce the ability of the 2 year 10 year curve to predict future economic activity. Last night the Fed continued to stress that it is likely to keep rates on hold for an extended period, and many other commentators see low rates for a very long time. With many people still watching and indeed citing the level of the US 2 year 10 year yield curve as a proof of economic strength, it may be worth re-evaluating this metric.

I would also like to point out that a steep or positive yield curve makes funding a large deficit far easier, no one has as interest in buying Long-Term paper with little of no carry.