BOJ Signals Gradual ETF Sell-Off Amid ¥37 Trillion Portfolio Risk and Political Uncertainty

- BOJ plans cautious reduction of ¥37 trillion ETF portfolio. - Fiscal policy uncertainty follows former Prime Minister Shigeru Ishiba’s resignation. The Bank of Japan is advancing plans to unwind its unprecedented ¥37 trillion exchange-traded fund (ETF) holdings, a move that marks a pivotal shift away from over a decade of aggressive monetary stimulus. The BOJ built this portfolio since 2010 to combat deflation, and it remains central to the bank's economic strategy. However, political instability from former Prime Minister Shigeru Ishiba’s recent resignation has delayed the timeline. This situation complicates the central bank's ability to gain clarity on incoming fiscal policies. On September 11, 2025, Cryptopolitan reported that the BOJ is adopting a careful, multi-year approach to reduce its ETF holdings without unsettling financial markets. Deputy Governor Ryozo Himino outlined plans to sell ETFs gradually in small increments. This approach reflects the central bank’s intent to mitigate risks to investor confidence and aligns with the BOJ’s earlier phased divestment of its stock holdings, a process that spanned two decades and concluded in July. Unlike bonds, ETFs require active sales to remove them from the BOJ’s balance sheet. The central bank’s holdings currently exceed 125% of Japan’s GDP, which compounds this technical complexity. While the record-high Nikkei stock average presents favorable conditions for offloading assets, the BOJ is proceeding cautiously amid the political transition. The bank is wary of facing additional political pressures, as opposition parties such as the Constitutional Democratic Party of Japan have already proposed redirecting ETF dividends toward public expenditures, including crucial programs like childcare. Governor Kazuo Ueda stressed the need to spend time before enacting significant steps, highlighting the risk of market instability. Deputy Governor Himino’s remarks further suggest that any progress will be incremental, and the BOJ will likely not make immediate decisions at its next policy meeting. A clearer picture of the bank’s divestment plans may emerge during Governor Ueda’s scheduled press conference on September 19. Meanwhile, board member Kazuyuki Masu has reiterated the importance of extreme caution to maintain market balance as the bank scales back its holdings.