Japanese stocks decline on BOJ’s ETF sale plan; Yen, yields rise

Japanese stocks decline on BOJ’s ETF sale plan; Yen, yields rise

Japan’s blue-chip Nikkei gauge dropped after the nation’s central bank said that it will begin selling its holdings of exchange-traded funds. The yen strengthened, while bonds fell.

The Nikkei 225 Stock Average fell as much as 1.8%, reversing an earlier gain, while the broader Topix dropped 0.4% as of 1:41 p.m. in Tokyo. The Bank of Japan said at the end of a two-day gathering it will sell about ¥620 billion of ETFs per year by market value, or ¥330 billion by book value.

The yen climbed as much as 0.5% against the dollar as the BOJ’s announcement underscored that it remains on a normalizing path for monetary policy, while yields in two-year and 10-year government bonds rose.

Investors will also be on the watch for BOJ Governor Kazuo Ueda’s comments later in the day. The BOJ left its benchmark interest rate unchanged, with the board’s vote 7 to 2, the first time Ueda has faced two dissenters against holding rates during his term.

“The announcement of ETF sales led to worsening sentiment, on expectation that selling pressure will rise particularly among large-cap tech stocks where the BOJ holds a high ownership ratio,” said Hiroki Takei, a strategist at Resona Holdings Inc. “In addition, with two policy board members voting against holding rates, speculation about a rate hike has quickly emerged, further weighing on the market.”

This is the first time the BOJ has mentioned a plan for offloading its ETF holdings, worth around ¥37 trillion by book value, and more than double by market value.