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The Japanese central bank (JCB) will begin shipping 83 trillion yen worth of ETFs soon, starting in January, in an effort to minimize the impact on the stock market in the context of tightening monetary policy and a global contraction of available funds.

Japan’s rising interest rates coupled with the withdrawal of ETFs from the market is putting a strain on yen-based leverage, affecting riskier assets such as bitcoin, which is currently hovering around $89,700.

The JGB is expected to begin selling its substantial ETF holdings, with a portfolio valued at 83 trillion yen ($534 billion), as early as January. The action is being planned very smoothly to avoid turmoil on the platforms. However, even a gradual exit from an investment by one of the world’s biggest regulators matters, especially at a time when global liquidity is tightening. {

Let’s assess the potential impact on the market environment.

According to Bloomberg, JGB officials intend to methodically reduce ETF holdings, following a decision made at the board’s September meeting. The regulator has set a pace of 330 billion yen annually based on book value, which could take decades.

Their goal is to get the smallest response possible. Management wants the market response to be almost imperceptible, similar to how Japan sold its stakes in the banking sector in the 2000s without disrupting market stability.

Nevertheless, the scale of the assets is hard to ignore. The value of the ETF has risen significantly following the rise in Japan’s stock index over the past two years, giving JGBs a sizable unrecorded profit.

See also: Yields on Japanese government securities hit peak since 2008 – analyst warns that the deterrent has been removed

ETF selling is taking place amid expectations of a 25 bp key rate hike at the December 18-19 JGB meeting. According to Polymarket forecasts, the probability of such a decision is now 98% , which would bring the cumulative tightening to 75 bps. – the highest level in almost two decades.

This maneuver is important because Japan has long been the most affordable source of borrowing in the world.

For decades, the yen has been the main currency for borrowing and then exchanging it for other currencies and assets… Now this trend is weakening as yields on Japanese government bonds are rising rapidly, said analyst Mister Crypto

JGB plans to raise interest rates as early as Friday the 19th, which raises significant concerns about yen transactions.

Bitcoin fell significantly in value the last time they tightened policy: What is yen trading?

With the threat to the yen-based leverage mechanism, high-risk assets become vulnerable. Bitcoin is already trading below $90,000, hitting $89,701.

However, the reaction of the stock market has been quite restrained. Many experts point out that rumors about the JGB rate hike have been circulating for several weeks already, which gave trading participants time to adjust their positions. In this light, perhaps, part of the expected effect has already been accounted for in the current price levels.