BOJ to unwind ETF holdings as split board signals hawkish shift

Core Viewpoint - The Bank of Japan is initiating the sale of its risky asset holdings, indicating a potential phase-out of its extensive monetary stimulus sooner than anticipated [1][5]. Group 1: Interest Rate Decisions - The central bank maintained short-term interest rates at 0.5%, but two board members proposed an increase to 0.75%, signaling a shift towards a potential rate hike [2][3]. - The dissent from board members Hajime Takata and Naoki Tamura reflects increasing hawkish sentiment within the Bank of Japan [2][3]. - The likelihood of an October rate hike has increased due to the growing momentum for a rate increase among board members [4]. Group 2: Asset Sales - The Bank of Japan plans to sell exchange-traded funds (ETFs) at an annual rate of approximately 330 billion yen (around $2 billion) [4][5]. - Additionally, the bank will sell real-estate investment trusts (REITs) at an annual pace of about 5 billion yen [5]. - The decision to sell ETFs and REITs is part of a broader strategy to unwind the extensive monetary stimulus that has accumulated over 13 years, with the current ETF holdings valued at 37 trillion yen [5][6]. Group 3: Market Reactions - The announcement of ETF sales led to a decline in the benchmark Nikkei index from its record high, while the yen and short-term bond yields increased due to the hawkish stance of the board [7]. - The Bank of Japan's hawkish shift contrasts with the U.S. Federal Reserve's recent decision to cut interest rates, highlighting differing monetary policy approaches [7].