The credit spread curve distribution and economic fluctuations in Japan

Tatsuyoshi Okimoto, Sumiko Takaoka

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)


Predicting the future economy is of great interest to practitioners and policymakers. In this study, we confront this problem by examining the relationship between credit spread curves and future economic activity. To this end, we construct a monthly empirical distribution of credit spread curves by calculating credit spreads of corporate bonds at the firm level in Japan and examine whether it can be used to predict a Japanese business cycle. We find that the credit spread curve information in higher deciles (implying lower credit quality) provides more predictive power for the future economy than the information of government bond yield curve or the credit spread index suggested by previous studies. In addition, the smooth-transition predictive regression analysis demonstrates that credit spread curves have more predictive power under the low uncertainty regime, and depict a significant predictive power for a short horizon for both regimes. Finally, our component-wise analysis shows that the credit spread curve information has robust predictive power for producer-side indicators under the low uncertainty regime and for labor market conditions, regardless of the regime.

Original languageEnglish
Article number102582
JournalJournal of International Money and Finance
Publication statusPublished - 2022 Apr
Externally publishedYes


  • Business cycle
  • Corporate bond spreads
  • Predictive regression
  • Smooth transition model
  • Term structure

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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