The Bank of Japan (BOJ) kept interest rates unchanged on Friday, as expected, while also outlining plans to start selling parts of its massive stock, ETF, and REIT holdings. The decision came amid political uncertainty at home and the impact of U.S. tariffs on the economy.
BOJ keeps rates steady, signals asset sales
The central bank left its benchmark interest rate at 0.5%, in line with forecasts. Rates were last raised in January. Friday’s vote passed by a 7-2 majority, with two members calling for a 25 basis point hike, citing steady inflation.
The BOJ confirmed it will begin selling ETFs worth around 330 billion yen ($2.24 billion) per year and REITs worth about 5 billion yen annually. Sales will be proportionate to asset holdings and spread over time. The plan will start once operational steps are complete, and the pace may be adjusted at future meetings.
Morgan Stanley estimated the BOJ’s ETF portfolio at 79.5 trillion yen ($533.6 billion), with unrealized gains of 43.8 trillion yen. This represents more than 7% of the Tokyo Stock Exchange’s market value. Top holdings include Advantest Corp., TDK Corp., Nitto Denko, and Tokyo Electron. Despite concerns about selling pressure, these stocks have remained resilient.
Markets react to hawkish tone
Japanese stocks fell after the BOJ’s announcement. The Nikkei 225 dropped 1.4% from record highs, while the TOPIX slipped 0.5%. The yen strengthened, with USD/JPY falling 0.5% as investors viewed the message as hawkish.
The BOJ’s move marks another step in unwinding nearly a decade of ultra-loose monetary policy. Markets expect ETF sales to put further pressure on tech and retail stocks, especially within the Nikkei.
Political and economic headwinds
The decision comes amid rising political uncertainty following Prime Minister Shigeru Ishiba’s sudden resignation in September. His exit left a leadership gap in the ruling Liberal Democratic Party after it lost its majority earlier this year. A weaker political position may complicate fiscal policy and create more hurdles for the BOJ.
The central bank also warned of economic challenges, pointing to the impact of U.S. tariffs and slower local investment. It expects near-term growth to moderate but said accommodative financial conditions should provide support.
Japan’s inflation outlook remains mixed. Overall CPI is cooling, but core inflation was 3.3% in August, still above the BOJ’s 2% target. Governor Kazuo Ueda has stressed that rates may rise further to curb high prices. Markets are now watching his post-meeting press conference for additional policy signals.
