Japanese equities shrugged off the Bank of Japan's surprise move to accelerate selling of its massive holdings of exchange-traded funds, as investors showed confidence in the market's ability to absorb the extra supply.
Alongside its widely expected decision to keep interest rates unchanged, the BOJ announced it would nearly triple the pace of ETF sales starting in January to about ¥860 billion ($5.5 billion) per year based on book value. The Nikkei 225 Stock Average, which was under selling pressure from the morning amid a global tech selloff, pared losses to trade roughly 2% lower in the afternoon.
Yukihiro Kawanishi, a senior strategist at Aizawa Securities Co., said the impact would be limited given the current daily trading value compared with the BOJ's planned selling of roughly ¥2.4 trillion at market value a year. The average daily turnover this year for companies on the Topix index is about ¥9 trillion, according to Bloomberg data. "There may be benefits from improving liquidity in stocks where the BOJ's holdings have reduced the amount of shares available in the market," Kawanishi said. Taro Kimura, an economist at Bloomberg Economics, added that the plan may also support Prime Minister Sanae Takaichi's fiscal plans, as most realized gains are likely to be remitted to government coffers.
Jitters over the AI trade have dominated the stock market in recent weeks, yet the Nikkei is still up about 25% year-to-date, extending last year's 26% rally. The broader Topix gauge is up about 16%. The BOJ began purchasing ETFs in 2010 to revitalize Japan's corporate sector, and its holdings ballooned under former governor Haruhiko Kuroda. The central bank started selling ETFs this January, and the process has been smooth. Hiroshi Namioka, chief strategist at T&D Asset Management, said few had expected the acceleration, but the BOJ likely assessed market conditions, including trading turnover, before deciding it would not distort prices.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing