Institutions: key risks in the market for neutral interest rates or domestic debts

According to Takayuki Miyajima, an economist of the Sony Financial Group, a neutral interest rate (i.e., the level of interest rates that neither stimulates nor suppresses the economy) is one of the key risks facing the Japanese government’s bond market. If the financial environment remains relaxed even after the interest rate hike has come into effect, market perceptions of neutral interest rates may rise to levels between 1.50 and 1.75 per cent higher than those predicted by bond market experts. Such a change could drive market expectations of terminal interest rates to above the current level of 2.25 per cent, and keep Japan ' s 10-year national debt return firm at more than 3 per cent。