The Bank of Japan is preparing one of the largest portfolio unwinds in modern central banking, outlining plans to begin selling more than $500 billion worth of ETFs as early as January 2026.
Bank of Japan Sells ETFs
For years, the BOJ used ETF purchases as a shock absorber, amassing a massive portfolio of domestically listed funds in an effort to underpin asset prices and shore up confidence. A shift toward policy normalization now pushes the bank in the opposite direction: shrinking its balance sheet, letting long‑suppressed yields rise and paring back direct exposure to equities.
Sales will likely spread over multiple years, use predefined volume limits and lean on periods of stronger liquidity to avoid sharp dislocations. The central bank can also work through structures such as off‑market transactions or transfers to public vehicles if it wants to reduce market impact while still exiting direct ownership.
Market, Policy and Political Risks
The planned exit carries several layers of risk. A heavy, poorly timed selling schedule could feed volatility and sour domestic investor sentiment just as the BOJ also tightens other levers, from interest rates to government bond reinvestments. Policymakers therefore face a balancing act: signaling credibility on normalization without triggering a feedback loop of weaker stocks, tighter financial conditions and slower growth.
Equity strategists argue that Japan’s corporate‑governance reforms, rising buybacks and stronger balance sheets now provide a more resilient backdrop than in past cycles, which may help absorb central‑bank supply. At the same time, foreign funds remain sensitive to currency swings and global risk‑off episodes, any of which could complicate the BOJ’s timetable.
Politically, the scale of the ETF book raises questions about who ultimately bears the mark‑to‑market risk if sales crystallize losses and how gains or losses distribute across the public sector. The exit path will shape not only Japan’s market structure over the next decade but also the global debate over how far central banks should go when they support asset prices—and how they can safely step back once the crisis has passed.
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