Bank of Japan’s Surprising Announcement to Sell off ETFs Makes Stock Prices in Tokyo Market Wildly Fluctuate

By Kaname Sugimoto and Tomoki Okamoto / Yomiuri Shimbun Staff Writers

14:25 JST, September 20, 2025

In the wake of the Bank of Japan’s decision to sell off exchange-traded funds (ETFs), the Nikkei 225 stock price index of the Tokyo stock market wildly fluctuated on Friday.

The surprising announcement’s lasting effects on stock prices, which have been at record high levels, are seen to be limited. But some in the financial industry said that the BOJ’s dialogue with the private sector was insufficient regarding players in the stock market, who were caught off guard by the sudden announcement.

Panic selling

Shunsuke Kobayashi, an economist at Mizuho Securities Co., said: “It was a bolt from the blue. I have no other words to describe it than a surprising announcement.”

The Nikkei Stock Average 225 reached a record intraday high during the morning session on Friday, only to dive by more than 800 points from the previous day’s close at one point in the wake of the BOJ’s announcement.

The range of the fluctuations on Friday exceeded 1,300 points.

In the Tokyo market, the announcement caused panic selling due to a feeling that stock prices might have been overheated. An official of a major securities company said the stocks were “sold in a mechanical manner.”

However, a sense of relief from the fact that the quantities of ETFs to be sold by the BOJ will be small limited the extent of the fall. The close on the day was 45,045.81, down by 257.62 points.

Trading volume in the Tokyo Stock Exchange’s Prime section increased about 80% from the previous day to ¥8.75 trillion, marking the largest ever single-day figure since the TSE changed its trading section categories for listed companies in April 2022.

The BOJ’s plan to sell about ¥330 billion a year is based on the precedent of the BOJ having sold stocks, which it had purchased from financial institutions, since 2016 without causing confusion in the stock market.

At a press conference, BOJ Gov. Kazuo Ueda expressed consideration for the stock market by saying, “It is appropriate to gradually sell [ETFs] little by little so that disruptive effects on the market will be avoided as far as possible.”

Insufficient dialogue with market

The BOJ decided to sell ETFs because it aims to normalize monetary policy while stock prices have been hovering at high levels.

In 2010 after the global financial crisis known in Japan as the Lehman Shock, the BOJ began purchasing ETFs to prevent excessive falls in stock prices.

After Haruhiko Kuroda became the BOJ governor in 2013, the central bank expanded the amount of its ETF purchases continuously.

Ayaka Nakamura, a research fellow of the Daiwa Institute of Research, pointed out, “An expectation that the BOJ would prop up [stock prices] even if market conditions were to worsen, led to a sense of security for purchasing Japanese stocks among foreign investors.”

However, as the expanded purchases of the ETFs indirectly made the BOJ into a shareholder in private companies, some economists have been strongly critical, saying the situation could distort corporate governance.

The total book value of the ETFs held by the BOJ rose to about ¥37 trillion, accounting for 7% to 8% of the aggregate market value on the Prime section of the TSE.

When the BOJ ended its negative interest rate policy in March 2024, it decided to discontinue new purchases of ETFs. Thus, many market players assumed that the BOJ would start to sell off the ETFs. This could mean that its effect on stock prices may be limited because it was an already predicted course of action.

But seeing the large fluctuation of stock prices following the actual announcement, Nakamura said, “It could have been better if [the BOJ] had more careful communication [with the market].”