Mitsubishi UFJ Financial Group ( NYSE: MUFG ) stock and Sumitomo Mitsui Financial Group ( NYSE: SMFG ) American depositary shares were among Japanese bank stocks that surged in Tuesday premarket trading after the Bank of Japan surprised markets with its move to broaden its yield curve control tolerance range.
The central bank will expand the range of the 10-year Japanese government bond (JGB) yield fluctuations to +/- 0.5 percentage points from +/-0.25 pp, "to improve market functioning and encourage a smoother functioning of the entire yield curve."
While the Bank of Japan gave no indication that the move is a precursor to tighter monetary policy, the markets appear to be interpreting it that way. The action is "widely seen as the beginning of a potential end to their ultra loose monetary policy," Deutsche Bank's Jim Reid said.
The yen strengthened 3.1% against the U.S. dollar at 8:06 AM ET. And the 10-year JGB yield spiked 16 basis points to 0.418%.
Japan still has a negative policy rate, unlike most other advanced economies, which have raised their key rates quickly in the past year as they struggle to control inflation.
But the hint of the potential for tighter policy has Mitsubishi UFJ ( MUFG ) common stock jumping 9.9% , Sumitomo Mitsui Financial Group ( SMFG ) ADSs climbing 8.2% , Mizuho Financial Group ( NYSE: MFG ) ADRs up 3.2% in U.S., and Nomura Holdings ( NYSE: NMR ) gaining 1.7% premarket trading.
Earlier, yields rose, Nasdaq futures dipped as Japan surprised with wider yield cap .
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Mitsubishi UFJ, Sumitomo Mitsui stocks climb in U.S. trading after BOJ move