Central Bank of Japan (BOJ) Offloads ETFs, Maintaining Stability in the Economy
Bank of Japan Announces Plan to Gradually Sell Off ETF Holdings
The Bank of Japan (BOJ) has announced a plan to sell off a portion of its massive stockpile of Exchange-Traded Funds (ETFs), marking a significant step towards monetary policy normalization.
At a market value of ¥74.5 trillion, the BOJ's ETF holdings have been a key component of its quantitative easing programme since the financial crises in the 2000s. Governor Kazuo Ueda, who took office in 2023, has been advocating for a more normalised monetary policy, and this move is seen as further progress in that direction.
The BOJ plans to sell ETFs worth ¥620 billion (US$4.2 billion) per year. However, at this pace, the sale would take more than 100 years to complete. This gradual approach is likely a reflection of the BOJ's desire to avoid disrupting financial markets.
The decision to keep interest rates steady and to sell ETFs was widely expected by most economists. However, anticipation for a future rate hike is now set to build. The BOJ kept its policy rate at 0.5 percent in a contested vote, with two dissenters pushing for a hike. This was the first time there were two dissenters against a hold decision since Governor Ueda took office.
The yen advanced about 0.4 percent against the US dollar following the BOJ's announcement, while the Nikkei 225 has gained about 26 percent since the start of this fiscal year. These developments suggest that investors are viewing the BOJ's move as a positive step towards economic stability.
Despite domestic political uncertainty, it might be possible to raise rates again this year given current economic conditions. However, BOJ officials are still assessing the impact of US tariffs at home and abroad, and any changes to monetary policy will depend on the economic outlook.
The BOJ's announcement on ETFs and the dissenting votes underscored that the BOJ remains on a normalizing path for monetary policy. This move is expected to have far-reaching implications for Japan's economy and financial markets.
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