TOKYO: Tokyo stocks closed sharply lower on Tuesday after the Bank of Japan made a surprise tweak to its longstanding ultra-loose monetary policy that prompted the yen to appreciate against the dollar.

The benchmark Nikkei 224 index closed down 2.46 percent, or 669.61 points, at 26,568.03, while the broader Topix index lost 1.54 percent, or 29.82 points, to 1,905.59.

“It’s panic selling, as no one had expected the Bank of Japan decision,” Ryuta Otsuka, stocks strategist of Toyo Securities told AFP.

“Trading volume was thin as many investors were absent from the market with the Christmas holidays approaching, which also played a role in the dramatic fall in share prices,” he said.

After a two-day policy meeting, the bank said it would widen the band in which it would allow yields for 10-year Japan government bonds to move, saying it would “improve market functioning”.

The change marks a rare shift of gears for the dovish central bank, which has largely left its policy intact even as counterparts in other major economies hike rates to tackle inflation.

The announcement came during the morning break in Tokyo trade, but the key Nikkei 225 index plunged as it reopened, falling as much as three percent at one point.

The move saw the yen strengthen rapidly against the dollar, with the greenback falling from a daily high of 137 yen to 133 yen within minutes of the decision.

Tokyo shares fall on slowdown fears

The dollar slid further and was changing hands at 132.91 in late Tokyo hours.

A stronger yen also weighed on the market, on concerns it may worsen exporters’ earnings, but the main reason for the rout was that “everyone was surprised, like thunder in a blue sky”, Otsuka said.

Among individual equities, Toyota dropped 3.40 percent to 1,845 yen, Sony Group fell 3.68 percent to 10,350 yen, and SoftBank Group dived 4.85 percent to 5,726 yen.

Banks rallied, with Sumitomo Mitsui Financial Group soaring 5.36 percent to 4,974 yen and Mitsubishi UFJ Financial Group climbing 5.98 percent to 818.4 yen.