BOJ Begins The Unwind: ETF Sales Starting January 2026

Bank of Japan Prepares Gradual ETF Unwind Starting January 2026 Amid Tightening Liquidity

The Bank of Japan (BOJ) is set to begin unloading its massive exchange-traded fund (ETF) portfolio as early as January 2026, marking a significant step in normalizing monetary policy after years of aggressive stimulus. With holdings recently reaching a market value of around ¥83.2 trillion (approximately $536 billion at current exchange rates), this gradual exit could span decades but carries implications for global markets, especially as liquidity conditions tighten worldwide.

Officials aim to sell cautiously, targeting an annual pace of about ¥330 billion based on book value—equivalent to roughly 0.05% of daily market trading volume—to minimize disruptions. This approach mirrors past successful unwinds, such as the sale of bank stocks in the 2000s, where markets remained stable despite central bank involvement.

The BOJ's ETF accumulation, which began in 2010, helped stabilize Japanese equities during periods of deflation and crisis. Recent rallies in the Nikkei 225, which closed near 50,000 points in mid-December 2025, have boosted unrealized gains significantly, pushing the portfolio's market value to record levels.

Rate Hike Expectations Intensify Pressure

This ETF unwind coincides with mounting anticipation of further policy tightening. Markets are nearly fully pricing in a 25 basis point rate hike at the BOJ's upcoming December 18-19 meeting, potentially lifting the policy rate to 0.75%—the highest in almost two decades.

Japan's shift away from ultra-low rates ends its role as the world's primary source of cheap leverage. For years, low Japanese bond yields fueled the yen carry trade, where investors borrowed in yen to fund higher-yielding assets globally.

As yields rise—with 10-year Japanese government bonds recently touching multi-year highs—the carry trade is unwinding. This dynamic reduces cheap funding for risk assets, contributing to cautious sentiment across equities and cryptocurrencies.

Impact on Bitcoin and Risk Assets

Bitcoin (BTC) has felt the strain, trading around $89,000 as of December 15, 2025, after dipping below $90,000 amid broader risk-off moves. The cryptocurrency's correlation with global liquidity makes it vulnerable to reduced yen-funded leverage.

Analysts note that while the BOJ's actions add pressure, much of the anticipated tightening has already been priced in over recent weeks. Markets have reacted in an orderly fashion so far, with no signs of panic selling. This controlled response suggests investors view the changes as a managed macro shift rather than an abrupt shock.

Broader Implications for Global Markets

The BOJ's dual moves—ETF sales and potential rate hikes—signal the end of an era for extraordinary accommodation. Combined with rising Japanese yields and a stronger yen (USD/JPY hovering near 155), these policies could ripple through emerging markets, commodities, and tech-heavy indices reliant on low-cost borrowing.

For Japanese equities, the gradual ETF sales are designed to avoid downward pressure, but any acceleration in a crisis could prompt pauses, as officials have indicated flexibility.

Long-term, the unwind supports the BOJ's goal of returning to a more conventional balance sheet, reducing distortions from holding over 7% of the domestic stock market via ETFs. This normalization could enhance market efficiency and encourage private sector participation.

Investors should monitor the December policy meeting closely for signals on the pace of future hikes and sales. While short-term volatility may persist, the deliberate approach aims to preserve stability in Japan's recovering economy.

As central banks worldwide navigate post-pandemic adjustments, the BOJ's careful retreat from asset purchases highlights the challenges of exiting ultra-easy policy without unsettling global finance.

Georgi Shopov publication: "BOJ Begins The Unwind: ETF Sales Starting January 2026" was written for 24crypto.news

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