Bank of Japan is planning to slowly sell its ¥37 trillion ETF holdings built up since 2010

The Bank of Japan is working on a plan to slowly sell off its 37 trillion yen stash of exchange-traded funds, a pile built up over 13 years to prop up a stagnant economy.

The idea is to offload the risky assets directly into the market without wrecking investor confidence or triggering losses.

This would be the final phase of Governor Kazuo Ueda’s plan to undo a massive monetary experiment that has pushed the BOJ’s balance sheet to a bloated 125% of Japan’s GDP, the largest among any major central bank.

The issue has gotten more complicated due to political fallout from Prime Minister Shigeru Ishiba’s recent resignation, which has left lawmakers scrambling to pick a new leader.

BOJ drops first hints on ETF selling timeline

While Kazuo has said the bank would “spend time” before making a move, Deputy Governor Ryozo Himino suggested otherwise in a speech earlier this month.

Ryozo said the BOJ would “think about how to deal with its outstanding holdings of ETFs and real estate trust funds,” a line that sent a much stronger signal that a decision might not be far off.

Ryozo also made it clear the central bank plans to take notes from its earlier playbook, when it took two full decades to offload stocks bought between 2002 and 2010 to help banks survive plunging equity markets.

That process ended in July, clearing the way for the BOJ to start a similar strategy with ETFs. Based on those comments, the plan now is to sell in small portions over time, instead of transferring the holdings to public entities.

The ETF-buying binge started back in 2010 and was kicked into high gear in 2013 under former Governor Haruhiko Kuroda’s stimulus plan. The goal back then was to fight off deflation and breathe some life into a flat economy.

Now, the central bank’s ETF stash sits there like dead weight because, unlike government bonds, they don’t mature and won’t roll off the balance sheet unless sold.

At a press conference in July, BOJ board member Kazuyuki Masu said, “Nobody thinks it would be okay to leave things as is, so we need to scale back the size of holdings at some point,” adding that the process must be handled with “extreme caution” due to the risk of market shock.

Political drama delays action as opposition eyes BOJ profits

The next BOJ policy meeting is just around the corner, but analysts say the board is unlikely to lock in a decision then. Kazuo might touch on the subject at a post-meeting press conference scheduled for September 19, but the political noise has made things messy.

With the Nikkei stock average at record highs, this could have been an ideal moment to start the process. But the sudden exit of Shigeru has caused weeks of uncertainty.

The ruling party won’t have a new leader in place until after its internal election on October 4, and until that dust settles, the BOJ is flying blind on what kind of fiscal policies the new administration might bring.

Launching asset sales during such a messy transition could backfire. It could expose the BOJ to pressure from lawmakers, especially those looking for ways to redirect the ETF profits into public spending.

The Constitutional Democratic Party of Japan, the main opposition force, has already floated the idea of using dividends from the ETF holdings to help cover childcare costs.

A second official familiar with the matter said, “I don’t think the BOJ is in a huge rush. But it’s something it eventually needs to get done.”

For now, the central bank is walking a fine line; trying to clean up the aftermath of an aggressive stimulus era without setting off alarms in the market or giving politicians something to fight over.

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