Bank of Japan to Nearly Triple ETF Sales Starting January

The Bank of Japan will nearly triple its sales of exchange-traded funds (ETFs) starting in January, to approximately ¥860 billion ($5.5 billion) annually at book value. The decision was announced on Friday alongside the expected maintenance of the interest rate. Japanese stocks reacted calmly: the Nikkei 225, which was under pressure in the morning due to a global tech sell-off, reduced losses to about 2% by the evening.

Why the effect is limited

“The announcement may seem negative at first glance, but the effect will be limited considering the current daily trading value compared to the BoJ's planned sale of about ¥2.4 trillion at market value annually,” said Yukihiro Kawanishi, senior strategist at Aizawa Securities. The average daily turnover of Topix index companies this year is about ¥9 trillion, according to Bloomberg data. “There are benefits from improved liquidity in stocks where BoJ holdings have reduced the volume of freely traded shares,” he added.

Context

The plan may support the fiscal plans of Prime Minister Sanae Takaichi: a large portion of the realized income from sales is likely to go to the state treasury, noted Taro Kimura, an economist at Bloomberg Economics. The Nikkei has gained about 25% since the beginning of the year, continuing last year's 26% growth; the Topix is up about 16%. In September, the BoJ first announced plans to offload ETFs as part of policy normalization. Fund purchases began in 2010 and increased under former head Haruhiko Kuroda; in March 2024, the BoJ announced it would cease purchases and end the negative interest rate policy. Sales began in January and proceeded smoothly; the new pace is about 0.1% of the value.

“Few expected the BoJ to accelerate sales, so the announcement was a surprise,” said Hiroshi Namioka, chief strategist at T&D Asset Management. “But the bank likely made the decision after assessing market conditions, including turnover, and is signaling confidence that sales will not distort prices.”