With traders betting that the Bank of Japan will almost certainly end its negative interest rate policy by early next year, focus is shifting to where policymakers see the nation’s "neutral” rate.
This theoretical rate that neither stimulates nor restricts the economy is likely somewhere in a wide range of 0.5% to 2%, according to analysts, setting a huge challenge for investors.
Because the neutral rate will guide the BOJ as it normalizes monetary policy, it will also provide a key reference point for market pricing of Japanese bond yields, with implications for investment flows into everything from U.S. Treasuries to bonds from Europe and Australia.