Bank of Japan to Start Selling ETFs, Signals Hawkish Policy Shift

Photo: Reuters

The Bank of Japan (BOJ) has decided to begin selling its holdings of exchange-traded funds (ETFs) and real estate investment trusts (REITs), signaling a possible shift toward a tighter monetary policy. The move comes as two board members voted against keeping interest rates steady, suggesting a growing push for higher rates and an end to the BOJ’s long-standing economic stimulus program.

During a two-day policy meeting that ended on Friday, the BOJ kept short-term interest rates at 0.5%, but board members Hajime Takata and Naoki Tamura proposed raising the rate to 0.75%. Their proposal was not approved, but it highlighted an internal debate over how quickly the bank should move away from years of low interest rates and large-scale market support.

Charu Chanana, Chief Investment Strategist at Saxo, said, “The dissent from Takata and Tamura highlights growing hawkish pressure inside the BOJ. While most still support steady rates, the debate is shifting toward quicker normalisation.” Some market analysts now expect a rate hike could occur as soon as next month. Atsushi Takeda, chief economist at Itochu Economic Research Institute, said, “Momentum for a rate hike is building more than expected. The chance of an October hike has increased.”

The BOJ announced that it will sell ETFs at an annual pace of about 330 billion yen ($2 billion) and REITs at an annual pace of around 5 billion yen. The sales will begin once operational preparations are complete, and the pace of selling could be reviewed in future policy meetings. The central bank has held about 37 trillion yen in ETFs, accumulated over 13 years of purchases aimed at reviving Japan’s economy.

The plan to sell the holdings slowly means it could take over a century to fully reduce the BOJ’s ETF portfolio. This cautious approach shows the bank’s intention to avoid causing sudden disruptions in financial markets while gradually moving away from its massive economic stimulus.

The yen strengthened and stock markets turned negative following the announcement, reflecting market reactions to the hawkish signals. Governor Ueda emphasized the importance of carefully examining economic data and potential downside risks before making further moves.

This step marks another phase in the BOJ’s long journey to normalise monetary policy after years of low rates and heavy asset purchases. Analysts say that while the pace is slow, the policy direction is clear: the BOJ is signaling a shift toward tighter economic control and reduced reliance on market interventions.