Bank of Japan Holds Rate at 1.25% but Accelerates ETF Sales from 2027

The Bank of Japan left its benchmark short-term interest rate unchanged at 1.25% on Friday but took a firmer step toward shrinking the footprint of its past stimulus, deciding to accelerate sales of its exchange-traded fund holdings from January 2027.

In its statement after the Oct. 29-30 policy meeting, the BOJ said, “The Bank will encourage the uncollateralized overnight call rate to remain at around 1.25 percent.” The decision was approved by an 8-1 vote. Board member Hajime Takata dissented, proposing that the BOJ raise the rate further. The statement said Takata Hajime “proposed that the Bank set the guideline for money market operations as follows: the Bank would encourage the uncollateralized overnight call rate to remain at around 1.5 percent.”

Separately, the BOJ unanimously decided to speed up disposal of the equity ETFs it accumulated under years of aggressive easing. The central bank said, “Given these developments, at the MPM held today, the Bank decided to sell its ETF holdings at a scale of about 0.1 percent of the trading value in the market, and set the pace of sales at about 860 billion yen per year (on a book value basis).” The faster pace will begin in January 2027. Using the BOJ’s conversion method, that equals about 2.46 trillion yen a year on a market-value basis.

The ETF decision marks a significant increase from the pace set in September 2025, when the BOJ had planned to dispose of about 330 billion yen a year. The bank said it began selling ETFs in January 2026 and has “been conducting these sales smoothly while avoiding a major impact on the market.” The latest move suggests the BOJ sees room to press ahead with balance-sheet normalization even while holding borrowing costs steady at a level reached after its most recent rate increase in September.

The rate hold keeps the BOJ on its gradual path away from the ultra-low settings that defined Japanese monetary policy for years. Friday’s decision did not change the operational target that has been in place since late September, but the split vote showed at least one board member favored another increase now. Wire reports said the yen strengthened modestly and Japanese stocks fell intraday after the decision.

Why the ETF move matters is straightforward: the BOJ was once a major buyer of stock-market ETFs as part of extraordinary stimulus, so selling those holdings more quickly is a concrete step toward withdrawing that support. The bank left its planned pace of J-REIT, or Japanese real estate investment trust, sales unchanged at about 5 billion yen a year on a book-value basis.