The Bank of Japan (BOJ) took another step toward policy normalization, saying it would start to offload its massive exchange-traded fund (ETF) holdings even while keeping interest rates steady in a contested vote as two dissenters pushed for a hike.
The central bank yesterday announced it would start selling its massive stockpile of ETFs at a pace of about ￥620 billion (US$4.2 billion) per year. While at that rate it would take more than a century to sell, stocks fell, as it marked the first time the BOJ has laid out a plan for offloading the assets accumulated over years of ultra-easy monetary policy.
The 7-2 vote to keep its policy rate at 0.5 percent also marked the first time there were two dissenters against a hold decision since BOJ Governor Kazuo Ueda took office in 2023, showing that pressure is building for Japan to raise interest rates. While the outcome on rates was expected by all 50 economists surveyed by Bloomberg, anticipation for a move is set to build ahead of the next policy meeting on Oct. 29 to 30.
Photo: Bloomberg
The yen advanced about 0.4 percent against the US dollar, with the dissenters and the BOJ’s announcement on ETFs underscoring that it remains on a normalizing path for monetary policy.
Taken together, the central bank’s moves yesterday highlighted further progress in Ueda’s normalization campaign. Since taking over the reins at the BOJ in spring 2023, the governor has taken multiple steps to unwind the massive easing program conducted under his predecessor Haruhiko Kuroda.
“The Bank of Japan took another step toward normalizing its policy with a plan to start shedding ETF and J-REITs. Two board members dissenting in the decision to hold rates on Friday in favor of a hike show pressure to reduce stimulus is building after the trade deal with the US went some way to reducing uncertainty over the4 economic outlook,” Bloomberg economist Taro Kimura said.
The BOJ’s ETF holdings are worth about ￥37 trillion by book value and was about ￥74.5 trillion at market value at the end of March. It became the single biggest holder of Japanese stocks in 2020 during its massive monetary easing program, which ended last year.
While the bank stopped its regular buying of ETFs some time ago, the value of its holdings has continued to rise as the stock market hit record highs earlier this week. The Nikkei 225 has gained about 26 percent since the start of this fiscal year.
The BOJ likely plans to draw on its experience selling off stocks bought from beleaguered banks during the financial crises in the 2000s — a process that took nearly 18 years — to guide its careful unwind of ETF holdings. The goal is to reduce its market footprint gradually without disrupting financial markets.
“Selling ETFs worth ￥620 billion at market value yearly would take over 100 years to complete,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management Japan Ltd. “This extremely long time frame strongly reflects the BOJ’s desire to avoid dampening the current favorable market conditions. Announcing this amid a slightly overheated stock market was well-timed.”
The lack of rate action was widely expected after Japanese Prime Minister Shigeru Ishiba’s resignation declaration kicked off a race for his successor, roughly a year after the previous leadership election.
From an economic perspective, BOJ officials are still assessing the impact of US tariffs at home and abroad even after Japan managed to solidify its US trade deal, people familiar with the matter told Bloomberg.
They said that it might be possible to raise rates again this year regardless of domestic political uncertainty, given current economic conditions.
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