Japan Moves to Gradually Reduce $500 Billion ETF Hoard While Ensuring Market Neutrality

Japan Begins Ultra-Slow ETF Sales While Markets Watch Closely

Japan is preparing one of the most gradual exits from market intervention ever attempted by a major central bank, as the Bank of Japan (BOJ) readies to start selling more than $500 billion in exchange-traded funds next month.

Officials emphasise that the process will be painstakingly slow to avoid market disruptions, a lesson learned from past policy swings.

Why Japan Is Selling ETFs Now

The BOJ’s ETF holdings, originally accumulated as part of its quantitative easing programme launched in 2010, now total around ¥83 trillion in market value, with a book value of ¥37.1 trillion.

Officials say the decision to begin sales is partly motivated by the need to normalise monetary policy after years of ultra-loose measures, including negative rates and yield-curve control, while also reducing exposure to swings in equity prices.

With Japanese equities rallying in recent years, unrealised gains have climbed, making timing sensitive.

Governor Kazuo Ueda has emphasised that sales will be carried out “market-neutral as far as possible,” comparing the approach to the low-profile disposal of troubled bank stocks completed in July 2025 without major disruption.

How Slowly Will the BOJ Sell

The bank plans to sell at a pace of roughly ¥330 billion per year at book value.

At that rate, the process could take more than 100 years to fully unwind if nothing changes, though officials have made clear the flow could pause or slow if markets become unstable.

“The bank wants the flow of ETF sales to feel almost invisible,” according to people familiar with internal discussions, echoing the discreet approach used during a decade-long stock disposal from weak banks in the 2000s.

Sumitomo Mitsui Trust Bank has won the auction to handle the programme, signalling the operational start of the unwind.

The strategy is designed to maintain market stability, even as global traders react to developments such as AI-related selloffs and weak Chinese data.

Markets React As Global Risks Loom

Regional markets have shown sensitivity to both local and international signals.

On Monday, South Korea’s Kospi fell 2.16% and the Kosdaq dropped 1.17%, with SK Hynix down over 4% and Samsung Electronics off 3.3%.

Broader Asia-Pacific indexes also declined, including Australia’s S&P/ASX 200 by 0.66% and Hong Kong’s Hang Seng by 0.79%, while China’s CSI 300 remained flat following disappointing November figures: retail sales grew 1.3% year-on-year, below the forecast of 2.8%, and industrial output rose 4.8%, slightly under expectations.

In Japan, the fourth-quarter Tankan survey showed optimism among manufacturers, with an index reading of +15, slightly above forecasts, and non-manufacturing at +34.

Yet, the Nikkei 225 fell 1.3% and the Topix slipped 0.27%, reflecting caution amid weak Chinese data and global uncertainties.

Will the Sales Shake the Market

Analysts largely expect the unwind itself to avoid triggering a crash.

The pace is minuscule compared to daily trading volumes, and the BOJ retains flexibility to adjust or pause sales.

Foreign investors, who have been net buyers of Japanese equities, may also offset some selling pressure.

However, second-order effects are possible, as the mere knowledge of a persistent seller in the background could gradually weigh on equity multiples.

Implications for the Yen and Risk Appetite

The ETF programme is part of a broader BOJ shift, which includes policy normalisation and interest rate adjustments.

As the US–Japan yield gap narrows, a stronger yen could emerge, potentially dampening Japanese equities and impacting carry trades.

For global investors, Japan is increasingly behaving like a conventional market, sensitive to data and earnings, rather than one cushioned by central bank support.

Indirect Effects on Crypto Markets

While the direct impact on digital assets is limited due to the slow pace, the move contributes to a larger global context of quantitative tightening.

Reduced risk appetite and a stronger yen could temper speculative flows, including into crypto, though more stable, long-term capital could eventually diversify into digital assets over time.

A Century-Long Exit in Motion

The BOJ’s ETF unwind, if maintained at the planned pace of ¥330 billion per year, represents a uniquely slow and deliberate retreat from market intervention.

With careful calibration, officials aim to reduce balance sheet risk and address governance concerns while avoiding disruption in a market already sensitive to global developments.