But you're right--how to distribute those gains is a big issue. One proposal for how to deal with the BoJ's ETF holdings was to let households buy them at book value.

That's a really fair question. My point was mainly that worries about risks to the BoJ's balance sheet were overblown (not that they would have mattered much anyway--central banks aren't in the business of making profits). Turns out diversified equity portfolios tend to gain value over time!

TL;DR: ETF purchases were unconventional and controversial. But in hindsight, the BoJ's ETF gamble stands out as a rare bet that actually paid off.

Why sell now? To signal that tighter monetary policy is on the agenda. The BoJ didn't hike this month, but ETF sales show it's edging in that direction. The pace will be glacial--a full exit will take more than a century.

On returns, the policy was a winner. Japanese equities have surged in recent years, and the BoJ's ETF holdings are now worth about double their book value. That's trillions of yen in paper gains--compare that to other central banks that have booked large bond losses.

In hindsight, those fears look overstated. The BoJ stuck to broad, diversified ETFs (first Nikkei 225, later TOPIX). That kept risks limited and avoided distorting corporate governance more than any other passive investor.

Most of the BoJ's ETFs were bought under former Governor Kuroda to ease policy by lowering capital costs and boosting risk-taking. Critics worried about distortions and losses. Few other central banks ever dared to buy equities.

"Geopolitical realities have shifted the narrative. At long last. We will now get to see how the single currency works with a more sensible, if somewhat inflationary, fiscal policy from the core of the euro for the first time." moneyinsideout.substack.com/p/german-fis... 2/2

Direct link: www.economy.com/getfile?q=6C...

Learn more here: www.economy.com/economicview... and here: www.moodys.com/web/en/us/ca...

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