The Bank of Japan has outlined a plan to gradually reduce its massive ¥75 trillion ($507 billion) holdings of exchange-traded funds, a longstanding overhang for local equities. While markets initially sold off on the announcement, the scale and pace of the sell-down — roughly ¥620 billion a year, spread across a century — reassured investors, with losses quickly pared.
The news came as Japan’s Nikkei 225 and Topix indices reached fresh record highs, underscoring investor confidence despite earlier shocks from the end of negative rates in 2024 and recent U.S. tariffs. Analysts said the BOJ’s long timeframe should limit disruption, with strong buyback activity from cash-rich Japanese firms and continued foreign inflows helping absorb sales.
Still, risks remain. The BOJ owns about 7% of Japanese equities through ETFs, and any misstep that outpaces market demand could destabilize prices. Political uncertainty around the Liberal Democratic Party’s leadership and external tariff pressures also linger. Investors are expected to monitor stocks with heavy Nikkei weightings, including Fast Retailing, which fell 4.5% Friday, and SoftBank, which rose 0.7%.
Longer term, corporate governance reforms, foreign diversification flows, and a pro-growth domestic policy agenda should underpin Japan’s equity bull trend, with strategists broadly expecting resilience even as ETF sales begin next year.
