Trillion-Dollar Asset Manager Warning: Market Underestimates BOJ’s Resolve to Hike Rates, Caution Advised on Short-Term Bond Allocations

[Bitpush] Recently, I saw an interesting viewpoint from an investment institution managing trillions in assets—they think the market might be underestimating the Bank of Japan’s hand.

The head of their global rates team stated bluntly that if the BOJ really wants to tame inflation, rates will need to go higher than current market bets. Policy rates are only at 0.5% now, but the so-called “neutral rate” is estimated to be in the 1% to 2.5% range. What’s the neutral rate? It’s the balance point where you’re neither hitting the gas nor the brakes.

More importantly, the institution predicts that at the December 19 meeting, the BOJ will most likely keep tightening. Based on this outlook, their advice is clear: short-term Japanese government bonds aren’t worth holding. In their words, steering clear of JGBs on the short end of the yield curve is the right risk-averse move right now.

The logic behind this isn’t complicated—if rates are heading up, short-term bond prices will come under pressure. Hedge funds and asset managers are now recalculating their Japan strategies.