By Tom Westbrook
SYDNEY (Reuters) – The yen gained in volatile trade and stocks and bonds dropped in Tokyo after the Bank of Japan said it would take a more flexible approach to pinning down long-term yields, while hopes for stimulus had Chinese stocks heading for a weekly gain.
The Bank of Japan maintained ultra-low interest rates but said its target for 10-year government bond yields of 50 basis points either side of zero would be “references” rather than “rigid limits”.
The shift was flagged in a report in the Nikkei newspaper overnight and the yen initially fell in wild trade in the moments after the decision, before driving to its highest in a week at 138.50 per dollar.
The Nikkei share average fell 2%. Bank stocks surged 4% to an eight-year high on the prospect that the tweak could herald the dismantling of Japan’s ultra-easy monetary settings and open the way to better interest income.
Ten-year Japanese government bond yields rose to a nine-year high of 0.575%.
“It is an important step towards eventual disbandment,” said Tom Nash, a fixed income portfolio manager at UBS Asset Management in Sydney. “I expect yields will gravitate towards 1% but not get there in a straight line.”
Ten-year U.S. Treasury yields, which had climbed overnight on talk of a policy tweak, extended higher and were last up 3 bps to 4.04%.
MSCI’s broadest index of Asia-Pacific shares outside Japan was steady as gains in Hong Kong and China offset falls in South Korea and Australia.
(Editing by Shri Navaratnam and Christian Schmollinger)
