tl;dr
The Bank of Japan (BoJ) maintained its benchmark interest rate at 0.5% but announced plans to sell its ETF holdings for the first time, signaling a shift in monetary policy. Japan’s core inflation fell to 2.7% in August, the lowest since November 2024, prompting the BoJ to avoid rate hikes despite a...
**Japan’s BoJ Holds Rates, But the Real Story Is Its ETF Sell-Off**
The Bank of Japan (BoJ) surprised no one by keeping its benchmark interest rate at a historic 0.5% during its latest two-day meeting, but the real revelation came in the central bank’s announcement: for the first time ever, it plans to begin selling its massive exchange-traded fund (ETF) holdings. The move, tucked into a statement released after the rate decision, signals a subtle but significant shift in Japan’s monetary strategy—and raises questions about the future of its unconventional policies.
The BoJ’s ETF portfolio, built during its aggressive pandemic-era stimulus, is valued at around ¥37 trillion ($260 billion). At its peak, the central bank became the largest single owner of Japanese stocks, a bold experiment that reshaped the market. But that buying spree ended in 2023, and now, with inflation cooling and political uncertainty looming, the BoJ is pivoting. The decision to sell ETFs marks a departure from its previous approach, though the pace and scale of the sell-off remain unclear.
**Inflation Slows, But Not Enough to Spark Rate Hikes**
Japan’s core inflation dipped to 2.7% in August, the lowest since November 2024 and the third consecutive monthly decline. While the BoJ has long targeted a 2% inflation goal, the current trend isn’t alarming enough to prompt a rate hike. “Slowing inflation and global uncertainty have kept the BoJ on hold,” said Hiroaki Amemiya of Capital Group. “They’re prioritizing stability over premature tightening.”
The central bank’s caution is also shaped by political turmoil. Prime Minister Shigeru Ishiba’s abrupt resignation last week threw the ruling party into disarray, creating a leadership vacuum. With a new leader yet to emerge, the BoJ is waiting to see how policy directions might shift. Plus, the central bank is monitoring U.S. tariffs on Japanese goods, even after a recent trade deal, adding another layer of uncertainty.
**Markets React: Yen Rises, Stocks Waver**
The BoJ’s decision sent mixed signals to investors. The Nikkei 225 initially surged but closed 0.59% lower, while the yen strengthened to 147.45 against the dollar. Meanwhile, Japan’s 2-year government bond yields jumped to 0.885%, the highest since June 2008, as traders priced in a more hawkish stance. The Topix index, however, rose 0.84%, showing markets are still hedging their bets.
Across Asia, results were mixed. Australia’s ASX/S&P 200 edged up 0.77%, South Korea’s markets opened flat, and Hong Kong’s Hang Seng fell 0.4%. In India, Adani Enterprises surged over 4% after regulators cleared the Adani Group of major misconduct allegations, offering a rare bright spot.
**Global Markets Look to the Fed**
While Japan played defense, the U.S. markets surged on hopes of an upcoming Federal Reserve rate cut. The S&P 500 and Nasdaq hit record highs on Thursday, fueled by the Fed’s signals of easing. Smaller stocks, in particular, benefited, highlighting the divergent paths of global economies.
**What’s Next for the BoJ?**
The BoJ’s ETF sell-off could have far-reaching implications. Selling these assets might reduce its influence over stock markets, but it also risks destabilizing them if done too quickly. For now, the central bank is walking a tightrope—balancing the need for economic stability with the pressures of a shifting political and global landscape.
As Japan’s economy navigates inflation, political uncertainty, and international trade tensions, the BoJ’s next moves will be watched closely. For investors, the message is clear: the era of easy money is winding down, but the path forward remains anything but certain.