For more than a decade, the Bank of Japan was one of the biggest buyers of Japanese shares in the world. It did not pick individual companies. Instead it bought exchange-traded funds, or ETFs, that track the Japanese stock market. Now it is going into reverse. Understanding why it bought, and why it is selling, helps explain one of the quieter forces in Japanese markets.
Why the Bank of Japan bought shares
Japan spent years fighting deflation, a period of falling or flat prices that held back growth and wages. The Bank of Japan cut interest rates to zero and below, bought huge amounts of government bonds and, from 2010, began buying stock ETFs. The idea was to lower risk premiums, support confidence and encourage households and companies to take more risk.
Purchases were stepped up sharply in the years that followed. By the time the central bank stopped buying new ETFs in 2024, it had become one of the largest owners of Japanese equities.
Why it is now selling
Japan’s situation has changed. Inflation has returned, wages are rising and the Bank of Japan has been raising interest rates. Holding a vast stock portfolio no longer fits a central bank trying to return to normal policy. It also exposes the bank to losses if markets fall.
The challenge is selling without causing a crash. The Bank of Japan has chosen to sell very slowly, at a pace that is small compared with daily trading in Japanese shares. In October 2026 it said it would speed up the sales from January 2027, according to reports of its policy decision, but the approach remains gradual.
What it means for markets
A slow, predictable seller is very different from a sudden one. If the sales are small and well signalled, the market can absorb them with little effect. But they remove a source of support that investors relied on for years, particularly on days when shares fell and the central bank used to step in.
The sales also fit a wider shift in Japan towards higher rates. That matters for the yen. A Bank of Japan that is raising rates and shrinking its balance sheet tends to support the currency over time, which can weigh on exporters whose overseas earnings are worth less in yen.
A simple example
Imagine a market where a large buyer used to step in whenever prices fell by a certain amount. Traders learned to rely on it. If that buyer announces it will now sell a small amount every day for years, the market has to find its floor without help. Prices may not fall immediately, but the safety net has gone.
Common mistakes
One mistake is assuming central bank selling must push Japanese shares sharply lower. The pace is slow by design. Another is ignoring the link with the yen and interest rates, which may matter more for share prices than the sales themselves. A third is forgetting how long the process will take, which makes it a background factor rather than a daily driver.
The bottom line
The Bank of Japan bought stock ETFs to fight deflation and is now slowly selling them as it returns to normal policy. The sales are designed to be gradual, but they remove a long-standing support for Japanese shares and fit a broader shift towards higher rates. For background, read our guide to the Bank of Japan. If you want to test how you would trade a central bank surprise, try the free Samuel & Co Trading Trader Assessment.
