BOJ completes bank stock offloading

The Bank of Japan has completed the offloading of bank shares it began acquiring in October 2007 from beleaguered banks during the early 2000s banking crisis. The BoJ is now considering shifting its focus to exchange-traded funds.

According to the BOJ’s balance sheet report, the shares acquired from besieged banks declined from 2.5 billion yen ($17.4 million) in early July to zero as of July 10. The bank hoped to finish offloading the shares by March next year. The BOJ has also experienced a continued decline of approximately 10 billion yen in bank shares per month in recent years, which pushed its deadline for offloading the shares to this time of the year.

BOJ fulfills its milestone of offloading bank shares

The bank’s offloading of shares is meant to work without disrupting financial markets, despite taking a considerable amount of time. The BOJ began accumulating the assets as a crisis response measure, which followed the introduction of the huge quantitative tightening program years later, that Governor Kazuo Ueda’s board is currently working towards withdrawing.

 At two separate times, the BOJ purchased roughly 2.4 trillion yen ($16.3 billion) of stocks from private banks between 2002 and 2010. The initiative was aimed at helping stabilize the financial markets at the time, which was considered a bold move for a major central bank.

Japan’s central bank initiative of purchasing stocks from the beleaguered banks started in November 2002 after a banking crisis in the same year that resulted in a decline in bank shares for about three years. The BOJ continued acquiring bank shares for another two years to help banks tackle their non-performing loans. The bank also doubled down on its purchases of stocks held by other banks from February 2008 to April 2010 during the global financial crisis.

The BOJ has taken approximately 18 years to liquidate the shares of the besieged banks completely since the beginning of its purchasing initiative. The bank issued a notice a decade earlier that it hoped to continue selling shares until March 2026.

BOJ shifts its focus towards ETFs

During COVID, Japan’s central bank became the largest holder of Japanese stocks, and also grew its ETF holdings by 15 times more than what it acquired from besieged banks. According to the National Bureau of Economic Research, the BOJ’s policy report explains that it purchases ETFs to improve equity, reduce its capital costs, and stimulate its investment.

The bank’s latest account data reveal that it holds about 37 trillion yen ($242 billion) of ETFs by book value. If the BOJ maintains the same offloading pace it used for bank stocks, liquidating its current ETF holdings would take over 200 years. Goldman Sachs economists believe that the BOJ could begin gradually offloading ETFs in fiscal year 2026 to minimize its loss and the impact on the stock market.

“It fulfilled the intended objective. Offloading them isn’t completely finished yet but so far it’s been proceeding without negative market impact or financial loss for us. As I have said many times, there is no change in our stance to take time to consider what to do with the ETF holdings.”

-Kazuo Ueda, Governor of the Bank of Japan.

The BOJ’s offloading of bank stocks also complements purchasing ETFs because the sale of both asset types could cause a huge negative impact on the markets. The bank has been working towards normalizing policy with the end of negative interest rates and quantitative easing in March 2024. Last month, the BOJ changed its government bond purchasing plan, agreeing to reduce the bond buying from April 2026 due to the heightened bond market volatility.

The BOJ reported that it garnered roughly 1.4 trillion yen in revenue from ETF dividends in the fiscal year ending in March 2025. A Goldman Sachs report, authored in part by Akira Otani, a former BOJ official and financial markets department head, forecasted that the bank will opt for a long-term plan to incorporate gradual market sales to reduce its 37T yen ETF holdings.

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