Bank of Japan schockwaves investors.

The Bank of Japan surprised investors with a change to a core tenet of its monetary policy, sending shockwaves across the currency, bond and equity markets. Traders described an adjustment to its longstanding yield curve control measures as potentially marking a «pivot» by the BoJ, the last of the leading central banks to stick to an ultra-loose monetary regime. «We view this decision as a major surprise, as we had expected any widening of the tolerable band to be made under the new BoJ leadership from spring next year, similar to the market,» said Naohiko Baba, chief Japan economist at Goldman Sachs. The yen rose more than 4 per cent to about ¥131.2 against the US dollar in New York trading, while Japan’s Topix equity index fell 1.5 per cent.

The 10-year Japanese government bond yield surged by its most in almost two decades, reaching a high of 0.47 per cent. The BoJ move ricocheted across other big markets. The US 10-year Treasury yield rose 0.11 percentage points to 3.69 per cent, while the equivalent UK gilt yield increased by a similar margin to 3.6 per cent. It kept overnight interest rates at minus 0.1 per cent.

Kuroda had earlier said any tweak to the yield curve policy would in effect amount to a rate rise. But he said yesterday the adjustment was to address increased volatility and improve bond market functioning to «enhance the sustainability of monetary easing». Kuroda had long argued that any tightening would be premature without robust wage growth, which is why most economists had expected the BoJ to stay the course until he steps down in April. «Maybe it’s an act of generosity by Kuroda to reduce the burden for the next BoJ governor, but it’s a dangerous move and market players feel duped,» said Masamichi Adachi, chief Japan economist at UBS.

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