Nikkei retreats and bond yields spike after BoJ holds rates in split decision

Japan's Nikkei share average flipped to a loss on Friday, while bond yields jumped to 17-year peaks after the Bank of Japan (BOJ) kept interest rates steady as expected, but in a split decision with two of the nine board members voting for a hike.

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The central bank also announced it will begin selling its holdings of exchange-traded funds (ETFs) and Japanese real-estate investment trusts (J-REITS), amassed over a decade of massive stimulus.

“It came as a surprise,” Hirofumi Suzuki, chief currency strategist at SMBC, said about the BOJ's decision.

“With the start of ETF sales and two dissenting votes against leaving policy unchanged,... the outcome was hawkish despite expectations for a straightforward hold.”

The Japanese yen initially strengthened following the central bank's policy announcement, but had given up most of those gains as BOJ Governor Kazuo Ueda struck a balanced tone at his press conference, which started just as the stock market closed.

The Nikkei ended the session down 0.68 at 45,045.81, notably reclaiming the psychological 45,000 mark. It had tumbled as much as 1.8% in the immediate aftermath of the policy announcement.

In early trading, the Nikkei had risen as much as 1.2% to a record high of 45,852.75, driven by a surge in chip-sector stocks following an overnight rally in US peers.