Wednesday 05.45 BST. Stock markets across Asia have rallied and the yen has weakened after the Bank of Japan tweaked its monetary policy efforts.

The Japanese central bank made markets wait on Wednesday before delivering its decision, which included keeping interest rates on hold at minus 0.1 per cent but not ruling out taking them further into negative territory if needed.

The BoJ also decided to introduce an interest rate target for 10-year government bonds, stepping up its battle against deflation.

The BoJ kept the scale of its quantitative easing programme steady at ¥80tn yen per year, but said that target may fluctuate as the Bank tries to control borrowing costs along the yield curve.

Japan’s broad benchmark Topix was up 2 per cent while the Nikkei 225 rallied 1.3 per cent, with both having been lower ahead of the BoJ meeting.

The BoJ captured investors’ attention ahead of the Federal Reserve’s policy meeting later on Wednesday, where it is widely expected to keep interest rates on hold.

Analysts expected myriad possible outcomes from the Japan central bank, and there is much for investors to digest.

Notwithstanding the headline policy action, investors are likely to pay interest to the outcome of the BoJ’s internal staff review of Japanese growth and inflation under its quantitative and qualitative easing programme and its negative interest rate policies. The review was announced at the Bank’s July 29 meeting when it also doubled its purchases of exchange traded funds to ¥6tn annually.

After some volatile moves as the news was announced, the yen had weakened 0.8 per cent to ¥102.53 per dollar on Wednesday, but had strengthened 0.6 per cent over the first two trading days of the week.

The Japanese currency’s advance on Tuesday came despite a 0.2 per cent rally in the US dollar, although the index of the greenback against a basket of global peers was trading 0.2 per cent higher on Wednesday at 96.205. The yen has appreciated 3.5 per cent since the BoJ’s previous meeting in July and has also traded below the ¥100 per dollar level in that time.

The yield (which moves inversely to price) on the benchmark 10-year Japanese government bond was up 4.2 basis points at minus 0.021 per cent, eyeing its first rise in seven sessions.

Given the linkages of financial markets, analysts at DBS suggested it was possible the BoJ’s actions could throw a spanner at the US Treasury market ahead of the Fed meeting.

“The JGB curve has steepened as the market contemplates policy tweaks by the BOJ. With a shortage of JGBs and an overly flat curve potentially adding to financial stress, the market is positioned for a reduction in purchases of longer-term JGBs. If the BoJ does not deliver (proves more dovish than the market expects), a knee-jerk rally in JGBs could take place, driving longer-term US Treasury yields lower,” DBS said.

Running counter to the JGB market, Australian bonds were rallying. The yield on the benchmark 10-year Australian government bond was down 2 basis points at 2.135 per cent — the first decline in yields in nine sessions.

Other Asian stock markets improved, with Australia’s S&P/ASX 200 up 0.6 per cent and Hong Kong’s Hang Seng up 0.3 per cent. On the mainland, China’s Shanghai Composite was flat and the Shenzhen Composite was up 0.2 per cent.

Overnight, the S&P 500 closed fractionally higher, while equities benchmarks across the UK and Europe closed mixed.

Gold, which is sensitive to monetary policy expectations, was down 0.3 per cent on Wednesday at $1,311.31 an ounce.

Oil markets enjoyed a bounce during Asian trading. Brent crude, the international benchmark, was up 1.2 per cent at $46.44 a barrel, while West Texas Intermediate leapt 1.8 per cent to $44.82.

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