Markov-switching variance models and structural changes underlying Japanese bond yields: An inquiry into non-linear dynamics

This study employs a Markov-switching variance method to model structural changes in Japan's long-term government bond data and reveals three state classifications according to time-varying influences from various factors on bond yields. It examines three internal factors-Japan's short-term interest rate, its inflation rate and stock returns-and one external factor-yields on the US long-term government bond. The results of this study highlight the non-linear nature of Japanese bond yields over approximately the past three decades.