Term Structure of Credit Spreads and the Macroeconomy in Japan: A Global Factor Approach

The purpose of this study is to extract the global factor from individual credit spreads of major Japanese corporate bonds using state-space modeling and examine the predictive contest of the credit spread for the real economy. The results indicate estimated global factors are important drivers of individual credit spreads. My results indicate that credit spreads global factors have a substantial predictive power for future Japanese economic activity. This study makes a contribution to forecasting the future macro variables.