Pioneer Group warns that Japan's neutral interest rate is underestimated and suggests underweighting Japanese bonds

The trillion-dollar asset management giant Vanguard has issued a warning that the market has severely underestimated Japan's neutral interest rate level. The group's global rates chief, Harum, stated that the Bank of Japan needs higher rates than the market expects to effectively curb inflation and anticipates that the central bank will continue to raise rates at the meeting on December 19. Currently, Japan's policy rate is 0.5%, while the neutral rate is estimated to be between 1% and 2.5%. Vanguard advises investors to underweight Japanese short-term government bonds, believing that underweighting Japanese bonds on the short end of the yield curve is the right strategy to avoid risk.