The Bank of Japan (BOJ) is poised to complete the sale of millions of dollars’ worth of stocks purchased from troubled banks during the financial crisis much earlier than previously planned. According to the latest data, the central bank’s holdings of these stocks stood at ¥52.8 billion ($345 million) as of February 10. With its monthly selling pace averaging ¥10 billion over the last few years, the BOJ could sell off the remaining assets in just five months, which is ahead of its original target of March 2026.
This development is crucial for investors, as the BOJ’s next steps regarding its exchange-traded fund (ETF) holdings are closely watched. Many analysts believe that the BOJ would avoid selling both the stocks and ETFs simultaneously to avoid market turmoil. The early completion of the bank stock sales raises the possibility that the BOJ could initiate discussions with market participants about the future of its massive ETF holdings as early as this year.
The BOJ’s ETF holdings are significant, with a book value of ¥37 trillion ($242 billion) and a market value of ¥70.3 trillion as of September. These ETFs were purchased as part of a monetary stimulus program that began in December 2010 under then-Governor Haruhiko Kuroda. The objective was to boost inflation, and the program expanded so much that the BOJ became the largest single holder of Japanese stocks. However, under the current Governor Kazuo Ueda, the BOJ ceased these ETF purchases in March 2023 as part of efforts to unwind ultra-easy monetary policy settings.
Ueda has already raised interest rates three times over the past year and announced plans for quantitative tightening through the sale of government debt holdings. However, he has refrained from specifying a timeline for the sale of ETFs, citing the complexity of the issue. The sale of ETFs remains one of the major pieces of Ueda’s policy puzzle, and investors are waiting for clarity on how the BOJ intends to manage its massive holdings.
While the ETF holdings are much larger than the stocks purchased from troubled banks, the BOJ’s sale of bank stocks has been a much slower process. The central bank started acquiring these stocks in 2002 and resumed purchases after the global financial crisis in 2009. It has taken roughly a decade for the BOJ to come close to offloading all of its bank stock holdings, and the pace of this sale has picked up in recent years.
The potential sale of ETFs has sparked interest among politicians in Japan, with some advocating for the government to take ownership of the assets. This could potentially allow the funds to be used for public spending, such as financing childcare measures. Analysts have proposed various solutions, including the creation of a new listed vehicle to dispose of the ETF holdings or selling them off-market to long-term institutional investors at opportune times.
However, there is little urgency for the BOJ to rush the sale of its ETF holdings. The bank has earned significant revenue from ETF dividends, amounting to ¥1.2 trillion for the fiscal year ending in March 2024. This income stream is expected to continue supporting the BOJ’s finances as it normalizes its monetary policy, especially as the cost of paying interest to banks rises.
While the sale of bank stocks is on track to be completed ahead of schedule, the fate of the BOJ’s ETF holdings remains a key concern for market participants. The BOJ’s approach to managing these assets could have significant implications for Japan’s economy and financial markets in the coming years.
