Bank of Japan Holds Rates but Accelerates ETF Sales, Shortening Exit to 43 Years

The decision on ETF sales was the main surprise in the policy statement. On a book-value basis, the annual pace of equity ETF sales will rise from JPY330 billion to JPY860 billion starting in January 2027. Measured against total stock market trading value, those sales will go from 0.05% to 0.1%, and the estimated period required to complete the sale of all ETF holdings will shorten from around 112 years to 43 years.

Hajime Takata cast the lone dissenting vote, favoring a rate hike. In his view, with underlying inflation having reached the price stability target, the situation had shifted to a new phase in which the Bank needs to step up the pace of policy tightening to bring the policy rate closer to the neutral rate.

The currency reaction offered a measure of how unsettled investors were by the mixed signals. The yen firmed to 157.12 per dollar after the decision, then reversed course and weakened to 157.70, undoing the initial move.

The faster sales matter because they chip away at a legacy portfolio accumulated during years of aggressive monetary easing. The ETF holdings are a byproduct of that stimulus era, and reducing them more quickly changes the supply of shares the central bank will eventually return to the market. MUFG noted it remains unclear why there was a need to suddenly increase the pace of selling, leaving open the question of what prompted the shift at this meeting.