BOJ likely to opt for gradual selling of ETFs in markets, Goldman says

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By Leika Kihara

TOKYO (Reuters) -The Bank of Japan will gradually sell exchange-traded funds (ETF) in the market, rather than opt for other ideas like transferring them to government entities, when it decides to unload its holdings in the future, Goldman Sachs said on Friday.

The central bank purchased ETFs for 13 years from 2010 as part of its ultra-loose monetary policy aimed at reflating a moribund economy.

While the BOJ stopped purchases last year, it has not said when and how it could unload its 37-trillion-yen ($252 billion) ETF holdings, which have a market value of 70 trillion yen.

When it decides to unload the holdings, the BOJ has said it would do so based on three principles: to dispose ETFs at an appropriate price that avoids the bank from incurring losses, and in a way that causes minimum disruptions in the market.

“Experts have proposed various options, such as transferring them to government entities and transferring them to the public,” Goldman Sachs said in a report on how the BOJ could unload its ETF holdings.

“However, the method that satisfies all three conditions is likely to be small-scale selling on the open market over time,” it said in the report.

To minimise the BOJ’s loss and the impact on stock markets, a reasonable schedule would be for the BOJ to begin disposing ETFs from around fiscal 2026 or 2027, and sell at an annual pace of slightly over 600 billion yen to one trillion yen in book value, the report said.

The report was compiled by Goldman’s economists including Akira Otani, a former BOJ executive with experience heading the bank’s financial markets department.

BOJ Governor Kazuo Ueda has said the central bank will need more time to scrutinise how best to unload its ETF holdings.

($1 = 146.8800 yen)

(Reporting by Leika KiharaEditing by Mark Potter)