BOJ Holds Rates at 0.5%, Announces Unprecedented ETF Unwind Amid Political Uncertainty

The Bank of Japan maintained its benchmark interest rate at 0.5% in a 7-2 decision, aligning perfectly with market expectations. The real headline emerged from its balance sheet strategy: the central bank will begin divesting its ¥37 trillion stockpile of exchange-traded funds, accumulated during pandemic-era stimulus. This marks the end of an era where the BOJ became Japan's largest equity holder.

Core inflation slowed to 2.7% in August—the third consecutive monthly decline and the weakest reading since November 2024. The disinflationary trend removes urgency for policy tightening, with Governor Ueda signaling patience amid economic crosscurrents.

Political turbulence compounded the cautious stance. Prime Minister Shigeru Ishiba's abrupt resignation has triggered a leadership contest within the ruling party, creating policy paralysis just as the BOJ navigates its ETF unwind. The central bank appears content to wait for clarity on Japan's political direction before making its next move.