Japanese Stocks Slide as BoJ Unveils $250 Billion ETF Unwind Plan

BoJ Announces Historic ETF Sale

Tokyo – Japanese stocks fell sharply after the Bank of Japan (BoJ) announced plans to start selling its $250 billion holdings of exchange-traded funds (ETFs). Governor Kazuo Ueda noted that the unwinding could take more than a century to complete. The announcement coincided with the BoJ’s decision to keep interest rates on hold, though a split vote on rates has raised expectations for a future adjustment.

The ETF unwind plan was larger and sooner than many investors anticipated. The BoJ said it would sell ETFs with a book value of ¥330 billion ($2.2 billion) per year, which currently have a market value of ¥620 billion ($4.2 billion). Ueda explained that the plan draws lessons from a similar disposal of Japanese stocks during the 2002 banking crisis.

“This is a historic step in normalizing monetary policy,” Ueda said, highlighting that at the current pace, ETF and JREIT sales could exceed 100 years. The central bank’s holdings of risk assets had grown substantially during the Abenomics era, once representing roughly 7% of the total market value of listed Japanese stocks.

Political and Economic Backdrop

The announcement comes amid political and economic uncertainty. Japanese households continue to adjust to sustained inflation, while the ruling Liberal Democratic Party (LDP) prepares for an emergency leadership vote to select the next prime minister. Analysts said these factors contributed to market volatility following the BoJ’s announcement.

Interest Rates Held, Committee Split Revealed

The BoJ also decided to maintain its short-term interest rate at 0.5%, in line with expectations. However, the 7-2 vote revealed a divide within the policy committee. The two dissenting members preferred a rate hike, signaling growing pressure to tighten monetary policy.

Benjamin Shatil, senior Japan economist at JPMorgan, said, “The split indicates the direction of travel. Markets now anticipate that at least two members will vote for a hike in future meetings.”

Market Reaction

Following the announcement, the Nikkei 225 initially dropped as much as 1.78% before paring losses to 0.57%. Meanwhile, the yen strengthened slightly against the U.S. dollar before stabilizing.

Core consumer price inflation, excluding fresh food but including energy, rose 2.7% in the 12 months to August, exceeding the BoJ’s 2% target for three consecutive years.

Global and Domestic Uncertainties

The BoJ highlighted uncertainty in global trade and overseas economic activity, particularly referencing U.S. tariffs. Morgan Stanley MUFG economist Takeshi Yamaguchi said these comments reflect Ueda’s cautious approach to balancing inflation risks with external pressures.

Rising living costs and stagnant wage growth remain politically sensitive. Many companies have struggled to increase salaries above inflation, contributing to voter dissatisfaction and the LDP’s recent loss of its majority in both houses of parliament.

Outlook for Japanese Monetary Policy

Analysts now expect the BoJ may raise rates by 0.25 percentage points in upcoming meetings. The central bank must carefully manage its policy exit to avoid disrupting markets while supporting sustainable economic growth.

The planned ETF sales and internal committee divisions suggest a gradual but significant shift in Japan’s monetary stance. Investors will be closely watching how the BoJ balances inflation, market stability, and political pressures in the months ahead.

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