TOKYO, Aug 6 — The Bank of Japan's (BOJ) holdings of exchange-traded funds (ETFs) may be tapped to help fund a planned reduction in the sales tax on food items, according to a senior lawmaker from Japan's ruling Liberal Democratic Party (LDP).

The government recently approved Prime Minister Sanae Takaichi's flagship plan to cut the sales tax on food from 8% to 1% for two years. This move comes amid concerns over Japan's already strained public finances. Takaichi has pledged not to rely on new debt issuance but to seek non-tax revenues to cover the estimated annual shortfall of around 5 trillion yen (approximately $31.71 billion).

Daishiro Yamagiwa, a senior member of the LDP's tax panel, said proceeds from selling the BOJ's ETF holdings, valued at about 37 trillion yen, could be considered to fill this gap. He noted that under the BOJ's current plan, it would take about a century to sell all its ETF holdings but suggested that given current high stock prices, accelerating the pace of sales might be feasible.

Currently, the BOJ is selling ETFs at an annual pace of around 330 billion yen as part of efforts to unwind its massive stimulus program. The central bank has stated it moves cautiously to avoid disrupting the stock market while unloading these assets, which were accumulated over 13 years to stimulate a sluggish economy.

This discussion signals that the BOJ's vast ETF holdings could come under increased political scrutiny as the government seeks alternative funding sources for its tax policy changes.

Sources