In the history of global central bank policy, the Bank of Japan stands out as a pioneer and relentless experimenter with unconventional methods. While most major central banks stick to traditional levers like interest rates, reserve requirements, and government bond trading, the BOJ crossed a significant boundary by using its own balance sheet to directly buy ETFs, deeply anchoring the stock market. Its ETF holdings have reached an enormous 37 trillion yen, representing about 7% of the Tokyo Stock Exchange's total market capitalization, making it one of the exchange's largest single shareholders.

This intervention, which has spanned over a decade, is the largest, longest-running, and most consequential monetary policy experiment in financial history. Reviewing this epic experiment reveals both a top-tier governance capability for stabilizing systemic risk and the long-term structural problems that arise from unchecked policy expansion without a pre-planned exit strategy. It serves as a genuine, two-sided textbook for global capital market regulation.

Where to Start: The Core Logic Is Beating Deflation, Not Boosting Prices

A common misconception is that the BOJ's ETF purchases are aimed at inflating the stock market or creating a bull run. In reality, the central bank's primary goal has never been to manage stock prices but to manage risk expectations and break the deflationary cycle. Unlike the market rescues often seen in other countries, the BOJ has built a systematic, market-based, and non-distortionary support framework with clear and restrained rules.

First, it buys only broad-based indices, never individual stocks. By exclusively allocating to Nikkei 225 and TOPIX ETFs, it absorbs only overall systemic risk, avoiding interference with specific stock movements or industry valuations. This prevents policy rent-seeking and market manipulation controversies from the start. Second, it defends the floor but doesn't chase rallies. During normal market fluctuations, the central bank refrains from intervention; it only activates mechanical, counter-cyclical purchases during crises marked by crashes, liquidity dry-ups, or panic selling. Third, it holds indirectly to isolate governance. The BOJ holds ETFs through trust bank nominees, avoiding direct shareholder voting rights and maintaining a legal and governance distance from the market to minimize the appearance of administrative meddling.

The core of this mechanism is to provide the entire stock market with a permanent, implicit put option. By forgoing control over short-term price levels, it focuses on anchoring the long-term valuation center and lowering the equity risk premium. This aims to repair household and corporate balance sheets, create positive wealth effects, and ultimately break Japan's three-decade-long deflationary inertia. In practice, this counter-cyclical support has been remarkably effective. During the March 2020 global pandemic meltdown and the August 2024 single-day 12.4% crash in Japanese stocks, the BOJ deployed hundreds of billions of yen within days to halt liquidity spirals. Over the past decade, while other major markets have suffered prolonged downturns and valuation collapses, Japan's stock market has shown remarkable resilience with stable bottoms, low volatility, and no extended bear markets. While the Federal Reserve's policy is often described as cyclical stimulus and boom-bust cycles, the BOJ's ETF strategy represents a higher-level paradigm of structural governance and expectation management.

Three Key Takeaways the World Can Learn From

The decade-long experience shows that the BOJ's ETF intervention is not simple money printing, but offers profound professional insights into crisis management and operational logic. The first lesson is to replace 'stock price management' with 'risk premium management.' This is the most advanced aspect of Japan's policy. As former Governor Haruhiko Kuroda made clear, the goal of ETF purchases is not to boost the index but to lower the market's risk premium. This distinction is critical: focusing on stock prices would trap the central bank in a continuous bet against the market, making policy short-sighted and emotional. Managing the risk premium, however, repairs the market's pricing logic. The transmission chain is a closed loop: counter-cyclical support reduces panic, which lowers the equity risk premium, which steadily raises the valuation center, which repairs household wealth and corporate balance sheets, which boosts consumption and investment, which ultimately reverses deflationary expectations. This logic successfully ended the negative cycle of Japan's prolonged stock market decline and provided a stable financial environment for economic recovery.

The second lesson is that broad-based operations create a rescue that is unbiased and low-controversy. Many national rescue efforts face criticism for favoring large companies over small ones or rescuing winners while letting losers fail, which can breed conflicts of interest and moral hazard. The BOJ, however, has stuck to pure broad-based index operations, not screening industries, picking stocks, or interfering with market meritocracy. It rescues market liquidity and protects overall systemic stability, not individual corporate share prices. This indiscriminate, institutionalized approach balances policy legitimacy with market fairness, making it an optimal model for crisis intervention. The third lesson is to act as the ultimate 'buyer of last resort' during crises. The root cause of a market crash is rarely the decline itself, but the cascade triggered by liquidity evaporation. In extreme moments when private capital is fleeing and no one is buying, the BOJ's mechanical counter-cyclical purchases perfectly fill the liquidity gap and break the negative feedback loop. This long-term stabilizing expectation has significantly reduced the tail risk of systemic failure in Japan's capital markets.

Why the BOJ Buys but Rarely Sells

For a long time, the BOJ almost never sold its ETF holdings, and only recently has it begun extremely modest reductions. The question is, why doesn't it sell on a large scale to realize its gains? In 2024, it simply stopped new purchases, leaving its holdings untouched. It wasn't until 2025 that it formalized a reduction plan, selling only 330 billion yen per year based on book value. At this pace, a full exit would take over 110 years, making it almost a non-sale. The reasons for this caution are clear. First, ETF stock assets have no maturity date, unlike government bonds that mature and disappear. All exits must be through active market sales, and flooding the market with such a massive amount of shares would trigger an immediate crash. Second, after over a decade of support, the market has developed a psychological dependence on this backstop. A large-scale sale would puncture the market's implicit safety net, causing the risk premium to rebound instantly and potentially wiping out decades of progress against deflation overnight. Third, the central bank itself is captive to its balance sheet. The substantial unrealized gains or losses are tied to the BOJ's own financial health, and a massive sell-off could damage its credibility.