Instant View: Investors react to BOJ's decision to keep rates steady

Core Viewpoint - The Bank of Japan (BOJ) maintained its short-term interest rates at 0.5% but initiated the sale of risky asset holdings, indicating a gradual move towards normalizing its monetary policy [1][2]. Group 1: Interest Rate Decisions - The BOJ decided to keep short-term interest rates steady at 0.5%, with two board members dissenting and proposing an increase to 0.75% [1]. - The decision to maintain rates was unexpected, especially with the initiation of ETF sales and dissenting votes indicating a hawkish stance [3][4]. Group 2: Asset Sales - The BOJ will sell its holdings of exchange-traded funds (ETFs) at an annual pace of approximately 330 billion yen [2]. - Additionally, the central bank will sell real-estate investment trusts (REITs) at an annual pace of around 5 billion yen (approximately $33.95 million) [2]. Group 3: Market Implications - The initiation of asset sales and dissenting votes suggest a shift towards quicker normalization, which may support the yen against the U.S. dollar [4]. - The BOJ's roadmap to wind down ETF and J-REIT holdings indicates a reduction in asset-purchase support, potentially creating structural headwinds for indices like TOPIX and Nikkei [4]. - For banks, the normalization process could provide a tailwind through steeper yield curves and improved net interest margins (NIMs), assuming steady economic momentum [4].