[TOKYO] The Bank of Japan (BOJ) finished selling millions of US dollars of stocks it bought from besieged banks during a domestic banking crisis in the early 2000s and the later Lehman Shock, ending a nearly two-decade process and bringing closer market attention to the fate of its much bigger pile of exchange-traded funds.
The BOJ’s holdings of the shares purchased from banks hit zero as of Jul 10, falling from 2.5 billion yen (S$26 million) 10 days ago, according to its balance sheet report on Monday (Jul 14). It was well ahead of a self-imposed deadline of March next year, although the milestone was expected to happen around this time after a steady drop of roughly 10 billion yen per month in recent years.
The offloading of the shares suggests that the BOJ’s normalisation process more broadly could be accomplished without disrupting financial markets, although it would take a considerable amount of time. The assets were originally bought as a crisis response measure, years before the introduction of the massive monetary easing programme that governor Kazuo Ueda’s board is now in the process of unwinding.
“The completion of the stock sales is one step towards ETF selling, but it’s still too early to start that process,” said Kazuhiro Sasaki, head of research at Phillip Securities Japan. At a time when equity markets are already jittery around US President Donald Trump’s trade policy, the BOJ will have to choose its timing carefully, Sasaki added.
Between 2002 and 2010, the BOJ acquired about 2.4 trillion yen of stocks from private banks in two separate periods to help stabilise the financial system at the time – initially seen as extraordinary steps to take for a major central bank.
The BOJ’s actions in the years following have ultimately made those steps less shocking. The central bank became the biggest holder of Japanese stocks around 2020 and the size of the central bank’s ETF holdings is now 15 times larger than the shares it obtained from beleaguered banks.
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In a report on Friday, Goldman Sachs economists noted that it’s reasonable to expect the bank to start gradually selling ETFs in fiscal 2026 to minimise its loss and the impact on the stock market.
It’s taken the central bank nearly 18 years to offload the bank shares completely, after it first began selling in October 2007. If the BOJ applies the same selling pace it did for the bank stocks, it would take more than 200 years to completely offload the far larger ETF holdings from its balance sheet.
“It fulfilled the intended objective,” Ueda said at a press conference last month, referring to the bank stocks buying initiative. “Offloading them isn’t completely finished yet but so far it’s been proceeding without negative market impact or financial loss for us.”
Getting rid of the bank stocks entirely helps lower the hurdle to consider ETFs, as the simultaneous sale of both asset types could risk a overly large negative impact on the markets. Starting with the end of negative interest rates and expansionary asset purchases in March last year, the BOJ has been cautiously normalising policy, with the latest updated government bond buying plan in June illustrating its caution.
One BOJ policy board member said in April last year that the bank should reduce the ETF holdings to zero even if it takes time. At the same time, Ueda has kept his options open – in March he did not rule out holding ETFs indefinitely.
From the perspective of the BOJ’s financial health, there is little need to rush to dispose of its stock fund assets. The bank earned 1.4 trillion yen in revenue from ETF dividends in the fiscal year ended in March 2025. That’s offering sizable support for the bank’s finances at a time when the cost of paying interest to banks is bound to rise further in tandem with rate hikes.
The ETF profits have drawn attention from investors and politicians. Some opposition party lawmakers are already calling for using the BOJ’s ETFs to fund government finances. Some analysts say that the BOJ could hand out the ETFs to the public.
“As I have said many times, there is no change in our stance to take time to consider what to do with the ETF holdings,” Ueda told reporters last month. BLOOMBERG
