Bank of Japan Holds Rates Steady, Moves Toward Asset Unwinding

The Bank of Japan (BOJ) kept its benchmark interest rate unchanged at 0.5% on Friday, aligning with market forecasts, as policymakers weighed political uncertainty at home and the broader impact of U.S. trade tariffs on Japan’s economy. The decision came by a 7-2 majority, with board members Takata Hajime and Tamura Naoki dissenting in favor of a 25 basis point hike, citing steady inflationary pressures.

Asset Sales to Begin: ETFs and REITs

In a landmark shift, the BOJ confirmed it will begin selling off portions of its large holdings of exchange-traded funds (ETFs) and real estate investment trusts (REITs).

• ETFs: Sales will proceed at a pace of about ¥330 billion ($2.24 billion) annually.
• REITs: Sales are set at ¥5 billion per year.
  The central bank emphasized that sales will be proportionate to its portfolio composition and spread over time, leaving room for adjustments in pace at future meetings.

This move marks a deepening of BOJ’s gradual tightening, after it had flagged plans last year to halt purchases of such assets. Japanese equity markets reacted negatively to the announcement, reflecting concerns over additional selling pressure.

Scale of BOJ’s Holdings

According to external estimates, the BOJ’s ETF portfolio is valued at roughly ¥79.5 trillion ($533.7 billion), with unrealized gains of about ¥43.8 trillion. These holdings represent over 7% of the Tokyo Stock Exchange’s market capitalization, underscoring the central bank’s outsized role in Japan’s equity market.

The heaviest BOJ exposure is concentrated in technology and semiconductor-related stocks, including major chip equipment and electronics companies. Analysts, however, noted that despite concerns, these stocks have shown resilience in recent weeks.

Broader Implications

The decision signals a cautious but notable pivot by the BOJ away from its extraordinary stimulus policies. While inflation remains above the 2% target, the central bank’s asset sales—combined with stable rates—reflect an effort to normalize policy gradually, while still safeguarding growth in a politically and globally uncertain environment.