Will Japanese stocks fall due to the BOJ's ETF sales? Reading the market through supply and demand, US interest rates, and corporate earnings
The Bank of Japan is increasing the pace of its ETF sales. Hearing this, one might feel that Japanese stocks will face significant selling pressure. However, if you do not distinguish between the date of the decision, the timing of implementation, the method of displaying sales figures, and buyer demand, you will misread the impact. In this article, we will connect this new supply-demand factor to the decline in US interest rates and the trade policies of the Trump administration.
The reference time is 17:40 on November 1, 2026 (Japan Standard Time). The following policies and figures are confirmed facts, while the impact on stocks is a conditional interpretation.
First, we need to confirm ‘when and at what scale’
In a decision announced at 12:02 on October 30, the BOJ kept its policy interest rate at around 1.25% while revising the annual pace of ETF sales from approximately 330 billion yen to approximately 860 billion yen on a book-value basis. Implementation will begin in January 2027. The new pace will not start immediately from November.
The sales ratio as a percentage of total market trading value is expected to be around 0.1%. The annual figure of approximately 2.46 trillion yen in market value is a reference value based on the market-to-book ratio from January to September of this year. You should not add 860 billion yen and 2.46 trillion yen together as separate sales amounts. The BOJ has also stated that temporary adjustments or suspensions based on market conditions are possible.Bank of Japan decision statement
Even a small ratio cannot be said to have zero impact
From here on is interpretation. In the short term, position adjustments by investors anticipating future increases in selling could move index and ETF prices. Reactions can occur even before actual sales begin.
On the other hand, the extent of a stock price decline cannot be calculated solely by the ratio to trading value. This is because daily trading value is the total amount traded multiple times and is not the same as new long-term investment capital. It is necessary to confirm the extent to which demand from overseas investors, corporate share buybacks, individuals, and pension funds will absorb this.
Over the course of several weeks to several months, the focus will be on whether profit growth and buying demand can absorb the selling factors. Conversely, if downward revisions to earnings forecasts and capital outflows overlap, the weight on the market will increase even at the same sales pace. We will not conclude that ‘decision to sell equals uniform stock price decline’ nor that ‘it is 0.1%, so it can be ignored’.
US interest rates have fallen. However, we must confirm the reasons separately
According to figures released by the US Department of the Treasury, the 10-year US Treasury yield fell by 11 basis points from 5.05% on October 28 to 4.94% on the 30th. The 2-year yield also fell by 11 basis points from 4.67% to 4.56%. One basis point is 0.01 percentage points.
The standard is the par yield estimated from the reference bid quotes around 15:30 New York time on each business day. The latest date is October 30, which corresponds to around 4:30 on the 31st, Japan time. This is not the execution yield of actual trades or a real-time value for November 1.US Treasury daily yield table
This table alone cannot identify the cause of the decline. If the decline is due to slowing inflation and expectations of monetary easing, it could ease the burden of corporate refinancing and the discount rate for stock valuations, supporting US growth stocks and housing-related sectors. However, even if government bond yields fall, if the credit risk premium for companies widens, borrowing costs will not fall sufficiently.
If the decline is due to economic deterioration or demand for safe assets, the decrease in sales and profits may outweigh the effects of lower interest rates. For Japanese stocks as well, this could be a headwind for export and capital investment-related sectors that depend on US demand. If the narrowing of interest rate differentials works in the direction of a stronger yen, it could weigh on the yen-denominated profits of export companies, while potentially reducing the burden for companies that buy imported raw materials and energy. Exchange rates are not determined solely by interest rate differentials.
Connect Trump tariffs to the confirmation of profit margins
The proclamation signed by Mr. Trump on October 23 changes the targets for additional tariffs on Canada
This is a formal decision. While excluding some items, it adds other items to the 50% additional tariff list, with application starting at 00:01 on October 30 (US Eastern Time, 13:01 Japan time). We treat this separately from statements or proposed considerations. It is not a content that imposes a 50% tariff uniformly on all Canadian items or all Japanese exports.White House proclamation
The ripple effect on stocks differs for each company. For companies with supply chains in North America, it is necessary to check the target items, country of origin, and procurement sources to see if they can pass the tariff burden on to prices and whether they will lose sales volume. There may also be companies that benefit from the exclusions. A decline in US interest rates alone will not resolve these cost and demand issues.
Next week, factors that will change the outlook
In the short term, we will monitor capital flows in response to the BOJ’s sales policy, the yen exchange rate, and whether US interest rates continue to decline. Over the next few weeks to months, we will focus on corporate earnings margins, order intake, and refinancing terms. The view is that if earnings forecasts are maintained and financing conditions improve, it will be easier to absorb the supply-demand burden of ETF sales.
Conversely, if slowing demand, widening credit spreads, and failures to pass on tariff costs coincide, the environment for stocks could become difficult even if interest rates fall. If US interest rates rebound due to re-accelerating inflation, a reassessment will be necessary from the perspectives of both stock valuation and capital procurement.
The next official points to check are the full text of the BOJ’s ‘Outlook Report’ scheduled for 2:00 PM on November 2, and the ‘Summary of Opinions’ scheduled for 8:50 AM on November 10. As of the time of writing, the former has not yet been released, so we will not anticipate its contents. At the same time, we will track corporate explanations of North American operations, as well as changes in US interest rates, credit environments, and actual demand. The schedule has been confirmed via the BOJ’s decision statement.
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This article is for informational purposes only and does not recommend the buying or selling of any specific stock. Forecasts are conditional and do not guarantee future prices or results.