Central Bank’s ETF sales: Monetary Policy Normalizing Further

Editorial

14:59 JST, September 20, 2025

The Bank of Japan has decided to sell its holdings of exchange-traded funds (ETFs). This marks another step forward in normalizing its large-scale monetary easing policy.

It is important to ensure a transition to stable growth while proceeding carefully to avoid market disruption.

According to the central bank’s announced ETF sale plan, the annual sales will amount to about ¥330 billion at book value, the price at the time of purchase, and about ¥620 billion at market value. This will represent about 0.05% of the market’s total trading value. Sales will commence as soon as preparations are complete.

The BOJ began purchasing ETFs in 2010 as part of its monetary easing policy aimed at overcoming deflation, with the goal of revitalizing the stock market. Purchases were expanded during former Gov. Haruhiko Kuroda’s tenure.

The BOJ’s outstanding ETF holdings as of the end of March amounted to about ¥37 trillion at book value and about ¥70 trillion at market value. The total market capitalization of companies listed on the Tokyo Stock Exchange is about ¥1.1 quadrillion, indicating a significant potential impact on price formation.

The central bank aims to avoid losses as much as possible and prevent market disruption. The Nikkei Stock Average is at a historic high, breaking the 45,000 line for the first time this week. Unrealized gains have also ballooned, suggesting conditions for the selling of ETFs are ripe.

Fundamentally, it is unhealthy for the Bank of Japan to be a major purchaser of stocks.

The Bank of Japan has purchased ETFs linked to stock indexes such as the Tokyo Stock Price Index (TOPIX), not based on evaluations of individual companies’ business strategies. This has drawn criticism for distorting stock price formation, as shares rise merely by being included in a group of companies to be used in calculating an index.

Shareholders are expected to keep a watchful eye on company management by exercising their voting rights. However, the fact that the Bank of Japan cannot directly use such voting rights in this manner has also been seen as problematic.

If the stock market is distorted, it will have a negative impact on economic growth. BOJ Gov. Kazuo Ueda said at a press conference, “By simple calculation, it would take over 100 years” to complete the ETF sales. The pace of sales should be adjusted while monitoring economic conditions.

Under Ueda, who took office in 2023, the Bank of Japan is proceeding with the normalization of monetary policy. It ended its negative interest rate policy in March 2024 and decided to guide the key policy rate to around 0.5% this year.

Alongside normalizing monetary policy, it is hoped the central bank will advance policies to help realize a growth-oriented economy in which both prices and wages rise.

Meanwhile, although the central bank kept the policy rate unchanged at about 0.5% this time, two board members opposed the idea, proposing to raise it to 0.75%. Debate over the timing of future rate hikes is likely to intensify. It will be crucial to assess the impact of factors, such as the tariffs on Japanese products imposed by the U.S. administration of President Donald Trump, before making decisions.

(From The Yomiuri Shimbun, Sept. 20, 2025)