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

According to TechFlow TechFlow, on December 5th, Vanguard Group, a trillion-dollar asset management giant, issued a warning that the market is severely underestimating Japan's neutral interest rate. Vanguard's Global Head of Interest Rates, Halem, stated that the Bank of Japan needs higher interest rates than the market expects to effectively curb inflation, and anticipates the central bank will continue to raise rates at its December 19th meeting. Currently, Japan's policy rate is 0.5%, while the neutral interest rate is estimated to be between 1% and 2.5%. Vanguard Group advises investors to underweight Japanese short-term government bonds, believing that underweighting Japanese bonds at the short end of the yield curve is the correct risk-averse strategy.