Bank of Japan Completes 18-Year Bank Share Offloading

The Bank of Japan (BOJ) has successfully completed the offloading of bank shares it began acquiring in October 2007 from distressed banks during the early 2000s banking crisis. This move marks a significant milestone for the central bank, which had initially aimed to finish the process by March next year. According to the BOJ’s balance sheet report, the value of shares acquired from troubled banks decreased from 2.5 billion yen in early July to zero as of July 10. The bank had been experiencing a steady decline in bank shares, approximately 10 billion yen per month in recent years, which accelerated the completion of the offloading process.

The BOJ’s strategy to offload these shares was designed to avoid disrupting financial markets, despite the considerable time it took to complete. The bank had accumulated these assets as a crisis response measure following the introduction of a large quantitative tightening program. Governor Kazuo Ueda’s board is currently working towards withdrawing this program. Between 2002 and 2010, the BOJ purchased roughly 2.4 trillion yen of stocks from private banks in two separate instances. This initiative was aimed at stabilizing the financial markets during a period of significant turmoil, marking a bold move for a major central bank.

The BOJ’s initiative to purchase stocks from distressed banks began in November 2002, following a banking crisis that resulted in a decline in bank shares for about three years. The bank continued acquiring shares for another two years to help banks address their non-performing loans. Additionally, the BOJ doubled down on its purchases of stocks held by other banks from February 2008 to April 2010 during the global financial crisis. It took the BOJ approximately 18 years to fully liquidate the shares of the distressed banks since the beginning of its purchasing initiative. The bank had previously announced a decade ago that it aimed to continue selling shares until March 2026.

During the COVID-19 pandemic, Japan’s central bank became the largest holder of Japanese stocks and significantly increased its exchange-traded fund (ETF) holdings, growing them by 15 times more than what it acquired from distressed banks. The BOJ’s policy report explains that it purchases ETFs to improve equity, reduce its capital costs, and stimulate investment. The bank’s latest account data reveal that it holds about 37 trillion yen of ETFs by book value. If the BOJ maintains the same offloading pace it used for bank stocks, liquidating its current ETF holdings would take over 200 years. Economists believe that the BOJ could begin gradually offloading ETFs in fiscal year 2026 to minimize its loss and the impact on the stock market.

Governor Kazuo Ueda stated, “It fulfilled the intended objective. Offloading them isn’t completely finished yet but so far it’s been proceeding without negative market impact or financial loss for us. As I have said many times, there is no change in our stance to take time to consider what to do with the ETF holdings.” The BOJ’s offloading of bank stocks complements its ETF purchases, as the sale of both asset types could have a significant negative impact on the markets. The bank has been working towards normalizing policy with the end of negative interest rates and quantitative easing in March 2024. Last month, the BOJ changed its government bond purchasing plan, agreeing to reduce bond buying from April 2026 due to heightened bond market volatility.

The BOJ reported that it garnered roughly 1.4 trillion yen in revenue from ETF dividends in the fiscal year ending in March 2025. A report authored in part by a former BOJ official and financial markets department head forecasted that the bank will opt for a long-term plan to incorporate gradual market sales to reduce its 37 trillion yen ETF holdings. The BOJ’s shift in focus towards ETFs reflects its evolving strategy in managing its assets and stabilizing the financial markets.