Vanguard warns that Japan's neutral interest rate is underestimated and recommends underweighting Japanese bonds.

Mars Finance reported that trillion-dollar asset management giant Vanguard Group has issued a warning that the market is seriously underestimating Japan’s neutral interest rate level. The group’s global head of rates, Harum, stated that the Bank of Japan needs higher rates than the market expects to effectively curb inflation, and predicts that the central bank will continue to raise rates at its December 19 meeting. Currently, Japan’s policy rate is 0.5%, while the neutral rate is estimated to be between 1% and 2.5%. Vanguard Group recommends that investors underweight Japanese short-term government bonds, believing that underweighting JGBs at the short end of the yield curve is the correct strategy for risk avoidance.