Japanese long-term interest rate forecast considering the connection between the Japanese and US yield curve

摘要

In recent years., overseas financial system crises (e.g., Lehman shock and European debt crisis) exerted major influence on the Japanese interest rates market through global financial transactions., such as interest rates derivative contracts and many types of interest rates arbitrage strategies. In this research., we examined the effect of overseas interest rates movements to the Japanese rates market. Then., we developed a forecasting model of Japanese yield curve based on a variety of machine learning methods., by considering the information obtained from overseas markets. Finally., we confirmed that the prediction accuracy of Japanese long-term interest rate improved by using the US interest rates data in addition to the Japanese interest rates data for machine learning. Furthermore., we confirmed that the prediction accuracy increased by using US and Japanese rates markets data in recent years., particularly after 2006. This result suggests that information of overseas interest rates can be used to forecast Japanese rates market nowadays.