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.