Bank of Japan ETF Unwind Triggers Market Sell-Off and Crypto Dip - BOJ Policy Impact

The Bank of Japan (BOJ) shocked global markets on Friday with its historic announcement to begin unwinding its massive $250 billion portfolio of exchange-traded funds (ETFs) and Japanese Real Estate Investment Trusts (JREITs). These assets were accumulated since 2010 as part of the central bank's unprecedented ultra-loose monetary policy strategy. Under the newly revealed plan, the BOJ will sell ETFs with a book value of ¥330 billion ($2.2 billion) annually, which translates to approximately ¥620 billion ($4.2 billion) at current market prices. BOJ Governor Kazuo Ueda emphasized that the selling pace would be deliberately gradual, noting it would require over a century to completely dispose of the entire holdings. The announcement coincided with the bank's decision to maintain its benchmark interest rate at 0.5% through a 7-2 split vote. The dissent from two members advocating for an immediate rate hike has heightened expectations for potential monetary tightening as early as October, especially with Japan's core CPI rising to 2.7% in August - significantly above the BOJ's 2% target. Market reaction was immediately negative, with the Nikkei index falling over 1% and Japan's 10-year government bond yield climbing to 1.64%. The crypto market followed suit, with bitcoin retreating to just above $116,000 after approaching $118,000 earlier in the day. This monetary policy shift occurs against a fragile economic backdrop, as Japan's debt-to-GDP ratio remains near 240% with bond yields at multi-decade highs, raising concerns about fiscal sustainability amid rising borrowing costs.