19.09.25 - Hawkish BoJ

Last night the Bank of Japan (BoJ) sent out some hawkish tone, even the BoJ left its policy rate unchanged at 0.5%, in line with expectations. But, the central bank delivered an unexpected signal on policy normalization, announcing plans to begin gradually selling down its enormous holdings of equity ETFs, valued at more than 75 trillion yen (around USD 508 billion).
BoJ accumulated the funds as part of its monetary easing program that ended last year.
In a further hawkish sign, two board members dissented, voting for a rate hike. The 7–2 split keeps the door wide open for a possible increase at the next meeting in late October.

Markets: Japan assets take some hit.

• Japanese equities reacted negatively: the Nikkei 225 Future slid more than 1.6%.

• Bond yields climbed, with the 10-year JGB yield rising to fresh highs above 1.64%.

• The yen saw some intraday volatility but settled with modest up-moves against major pears

My View: The market impact from the planned asset sales will likely remain limited, given the BOJ intends to sell only around JPY 330 billion (USD 2.2 billion) annually. Still, this shift removes a key tailwind: instead of persistent buying support, markets will face a subtle drag from steady selling.

More importantly, is another message: we are no in the same post-financial or pandemic crisis regime where all major central banks pushed rates lower in unison. The global landscape is fragmenting — some central banks are easing, while others, like the BOJ, are preparing to normalize. For investors, this means a more nuanced and selective approach is required when deciding where to allocate capital.

I do not intend to allocate exposure to the Japanese markets in the near future.

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