The Bank of Japan left its policy rate on hold at 0.50% at its September 2025 monetary policy meeting, opting for continued caution as it manages the most consequential transition in Japanese monetary policy in decades. Alongside the rate decision, the board gave formal approval to a plan for the orderly disposal of exchange-traded funds and Japanese real estate investment trusts accumulated during the bank's extensive quantitative easing programme — a significant step in the ongoing effort to return the central bank's balance sheet to a more conventional configuration.
The decision to hold rates was broadly anticipated by market participants, with the BoJ preferring to assess the effects of earlier tightening before proceeding further. The bank had exited negative interest rate territory in early 2024 and subsequently raised the policy rate to 0.50%, representing the highest level in approximately seventeen years. Officials have consistently emphasised that any further adjustments will be incremental and conditioned on incoming data, particularly wage growth and underlying inflation trends.
UNWINDING THE QE-ERA ASSET PORTFOLIO
The approved disposal plan for ETFs and J-REITs represents a notable milestone in the BoJ's normalisation effort. During the quantitative easing era, the bank became one of the largest holders of Japanese equities by purchasing ETFs as a tool to compress risk premiums and bolster market confidence during periods of acute economic and financial stress. The scale of those holdings attracted sustained scrutiny from analysts and market participants who identified the potential for distortions in equity valuations and in the process of price discovery.
Under the newly approved framework, the BoJ will begin reducing these positions in a manner calibrated to minimise disruption to domestic equity markets and, in the case of J-REITs, to the real estate investment sector. The bank did not disclose a fixed completion timetable, reflecting the sensitivity involved in unwinding a portfolio that, at its peak, made it the de facto largest institutional shareholder in a substantial proportion of Tokyo-listed companies.
The HKMA has consistently defended the peg as the cornerstone of Hong Kong's monetary and financial stability, emphasising that it has withstood multiple economic cycles, regional currency crises and prolonged periods of elevated global volatility without material strain on the currency arrangement. The authority has shown no indication that it intends to revisit or reform the peg, regarding its automatic and rule-based nature as a source of institutional credibility rather than as a constraint on monetary flexibility.
BALANCE SHEET NORMALISATION AND THE OUTLOOK
The September decisions reinforce the BoJ's commitment to restoring a conventional monetary policy footing while avoiding the kind of abrupt tightening that might destabilise markets or undermine Japan's economic recovery. Governor Kazuo Ueda has consistently framed normalisation as a process to be prosecuted with great care, particularly in light of the persistent uncertainties surrounding the global trade environment and the sensitivity of Japan's export-dependent industries to exchange rate movements.
With the policy rate held at 0.50% and the disposal plan for QE-era assets now formally approved, the BoJ has provided markets with a clearer sense of its near-term intentions on two fronts simultaneously. Attention will now focus on forthcoming inflation and wage data, which will determine whether the board judges conditions appropriate for a further, carefully calibrated rate increment before the end of the calendar year.