Bank of Japan's Historic ETF Unwind Sparks Market Sell-Off, Dip in Crypto

The Bank of Japan (BOJ) spooked markets Friday by announcing it will begin unwinding its $250 billion in exchange traded funds (ETFs) and Japanese Real Estate Investment Trusts (JREITs), assets it accumulated since 2010 as part of its ultra-loose monetary policy.

Under the plan, the central bank will sell ETFs with a book value of ¥330bn ($2.2 billion) annually, equivalent to ¥620bn ($4.2 billion) at market prices. BOJ Governor Kazuo Ueda stressed the pace would be deliberately slow, noting it would take more than a century to fully dispose of the holdings.

The announcement came alongside a decision to hold the bank's benchmark rate at 0.5% by a 7-2 split vote. Uncertainty over the next rate decision, with two members pushing for an immediate hike, has raised expectations of tightening as soon as October. Japan’s core CPI rose to 2.7% in August, well above the BOJ’s 2% target.

The Nikkei fell over 1% on Friday, while Japan’s 10-year JGB climbed to 1.64%. Crypto dipped alongside, with bitcoin falling back to just above $116,000 after threatening the $118,000 hours earlier.

The move comes against a fragile backdrop. As CoinDesk has reported, Japan’s debt-to-GDP ratio sits near 240%, with bond yields at multi-decade highs. Rising borrowing costs could pose a serious risk to fiscal sustainability.