BOJ governor Kazuo Ueda stated that further consideration is needed regarding the management of the bank’s ETF holdings. The BOJ must evaluate the risks associated with market fluctuations and valuation before proceeding to offload these assets.
Currently, the BOJ is concluding the disposal of stocks acquired from struggling banks, with their book value at ¥52.8 billion ($345 million). The bank has been reducing this by approximately ¥10 billion monthly, potentially finishing sooner than the projected timeline of March 2026.
Concerns Over Etf Wind Down
Concerns exist regarding the potential wind-down of the BOJ’s larger ETF holdings, valued at ¥37 trillion ($242 billion). If the bank continues to reduce ETF holdings at the same rate, it could take over 300 years to completely divest.
Ueda’s remarks highlight the challenges the central bank faces in unwinding its holdings without disrupting financial markets. With share values fluctuating, any large-scale reduction in ETFs could introduce volatility that may not be easily controlled. If the bank moves too quickly, it risks sending prices lower; if it moves too slowly, doubts may persist over its long-term strategy.
The disposal of stocks from distressed banks shows that the central bank is willing to take a measured approach. Selling ¥10 billion each month suggests caution, ensuring that markets absorb the supply without sharp price swings. This process appears well underway, and at the current pace, these holdings could be cleared before the original target date.
Potential Market Reactions
The ETFs are a much larger issue, both in scale and complexity. At ¥37 trillion, their value dwarfs the equities being sold from troubled banks. The comparison makes it evident that a similar approach would take an unworkable amount of time. Given that reality, alternative strategies must be considered. Adjustments in the pace of divestment, alterations in selling methods, or coordination with broader monetary policies could all come into play.
Markets will be watching closely. Any indication that the central bank might shift its stance could influence asset prices, particularly among companies linked to these funds. If traders expect policy adjustments, they may react even before official announcements. Sudden changes in sentiment could alter volatility patterns, requiring careful positioning.
Policymakers are not alone in managing the effects of these decisions. Participants in financial markets will need to assess how potential adjustments fit within broader economic trends. While the central bank weighs its options, those in investment-related areas must evaluate the knock-on effects of any shifts in policy direction.
