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Predicting Recessions and Information About Yield Curves and Stock Markets in Japan

Author

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  • Hokuto Ishii

    (School of Policy Studies, Chukyo University, Aichi, Japan)

Abstract

Using data from the Japanese government bonds and stock markets, this study examines the predictability of Japanese recessions based on a probit model with instrument variables. By decomposing the term spread into the expected short-term interest rate and the term premium, this study analyzes the relationship between the components of the term spread and recessions. The results show that the predictive power of the term spread for recessions has declined since 1999—when Japan began employing an unconventional monetary policy. Additionally, stock market capitalization relative to nominal GDP is a useful predictor of recessions.

Suggested Citation

  • Hokuto Ishii, 2025. "Predicting Recessions and Information About Yield Curves and Stock Markets in Japan," Economic Analysis Letters, Anser Press, vol. 4(1), pages 30-37, March.
    • Handle: RePEc:bba:j00004:v:4:y:2025:i:1:p:30-37:d:413
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