As early as January, the Bank of Japan (BOJ) is expected to begin selling its massive ETF holdings, a portfolio valued at ¥83 trillion ($534 billion). The plan is to move slowly and avoid market shock. But even a gradual exit from ETFs by one of the world’s biggest central banks carries weight, especially at a time when global liquidity is tightening.
See how this could affect the markets.
According to Bloomberg, BOJ officials plan to offload ETFs gradually following a decision made at the September policy board meeting. The central bank has set a pace of ¥330 billion per year based on book value, a timeline that could stretch for decades.
The goal is to keep the impact minimal. Officials want the market response to be barely noticeable, similar to how Japan sold bank stocks in the 2000s without disrupting markets.
Still, the scale is hard to ignore. The ETF holdings have grown sharply in value as Japan’s stock market rallied over the past two years, leaving the BOJ with massive unrealized gains.
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The ETF exit comes as markets expect a 25 basis point rate hike at the BOJ’s December 18-19 meeting. Polymarket currently shows a 98% probability of a hike , which would take Japan’s policy rate to 75 basis points, the highest level in nearly 20 years.
That shift matters because Japan has long been the world’s cheapest source of leverage.
“For decades, the Yen has been the #1 currency people would borrow & convert into other currencies & assets… That carry trade is diminishing now, as Japanese bond yields are rising rapidly,” wrote analyst Mister Crypto.
As yen-funded leverage comes under strain, risk assets are vulnerable. Bitcoin is already trading below the $90,000 level , sitting at $89,701 currently.
That said, the market response has been relatively controlled. Many analysts note that expectations around a Bank of Japan rate hike have been circulating for weeks, giving traders time to adjust positioning. In that sense, part of the impact may already be reflected in current prices.
While markets are clearly paying attention, there is no sign of disorderly selling so far, suggesting investors are treating this as a macro adjustment rather than a sudden risk event.’
