BOJ ETF Holdings in Crosshairs as Japan Seeks Sales Tax Cut Funding

The Bank of Japan's (BOJ) massive holdings of exchange-traded funds (ETFs), worth 37 trillion yen, have caught the attention of a ruling party executive. Daishiro Yamagiwa, a senior lawmaker of the Liberal Democratic Party's (LDP) tax panel, suggested that selling these ETFs could help fund a planned sales tax cut.

The government has signed off on Prime Minister Sanae Takaichi's plan to lower the sales tax on food items to 1% from 8% for two years. This decision comes despite concerns over Japan's strained finances, with an estimated annual revenue shortfall of 5 trillion yen (approximately $31.71 billion).

Yamagiwa proposed tapping into the BOJ's ETF holdings as a potential solution to fill this revenue gap. He noted that under the current plan, it would take a century to sell all of its ETF holdings. However, with stock prices high, Yamagiwa suggested speeding up the pace of sales.

The BOJ has been slowly selling its 37-trillion-yen worth of ETFs since last year's plan to dismantle remnants of its massive stimulus efforts. The central bank aims to avoid disrupting the stock market by unloading these assets at an annual pace of around 330 billion yen.