European Central Bank Shifts Away From Dollar, Moves Billions to Japanese Yen

The European Central Bank moved away from U.S. dollar holdings in early 2025, selling some assets and reinvesting the proceeds in Japanese yen. The bank described the transaction as routine portfolio rebalancing, generating nearly $1.1 billion in gains while reducing the dollar's share of its foreign reserves.

FRANKFURT – The European Central Bank made a significant shift in its foreign currency holdings during the first quarter of 2025, moving away from U.S. dollar assets in favor of Japanese yen investments, according to financial documents released Thursday.

The Frankfurt-based institution disposed of a portion of its American dollar holdings and channeled all proceeds into yen-denominated assets, generating profits of 909 million euros, equivalent to $1.07 billion.

Bank officials characterized the transaction as routine portfolio management rather than a strategic departure from dollar investments, which occurred before market volatility triggered by former President Donald Trump’s tariff policies announced in April.

“During the first quarter of 2025 the ECB sold a small portion of its U.S. dollar holdings and fully reinvested the proceeds in Japanese yen,” the institution stated in its announcement.

“This was part of a standard rebalancing of the composition of its foreign reserves to align with the target allocation,” the ECB explained.

While the bank did not reveal the exact transaction size, official data indicates dollar reserves decreased from $51.9 billion to $50.9 billion, while yen holdings jumped from 1.5 trillion to 2.1 trillion during the same period.

When measured in euros, dollar assets represented 78% of the ECB’s foreign currency portfolio, down from the previous year’s 83%. Officials noted that currency depreciation likely contributed to this decline beyond the actual asset sales.

The move comes amid speculation that major dollar asset holders might be reducing their American currency exposure due to unpredictable U.S. economic policies and the dollar’s significant value decline over the past year.

Meanwhile, the ECB continues to face financial challenges from its previous economic stimulus programs. The bank reported another annual loss of 1.3 billion euros in 2025, though this represents an improvement from the previous year’s 7.9 billion euro deficit.

These ongoing losses stem from the bank’s quantitative easing policies implemented during and before the COVID-19 pandemic. With interest rates rising sharply, the ECB now faces substantial interest payments on money created during those stimulus years, with approximately 2.4 trillion euros in excess liquidity still circulating in the financial system.

The institution carries forward losses totaling 10.5 billion euros, with provisions reduced to zero. Even when profitability returns, which officials expect within the next year or two, recovering these losses and rebuilding reserves could extend well into the next decade before dividend payments resume.

Most eurozone international reserves remain with individual national central banks rather than the ECB itself. Germany’s Bundesbank has absorbed the largest financial impact from these policies, while central banks in the Netherlands and Belgium have also recorded significant losses.

Unlike commercial financial institutions, central banks can sustain large losses and even negative equity for extended periods, as their primary mission focuses on monetary policy implementation and price stability maintenance rather than profit generation.