TOKYO, Dec. 20 (Xinhua) -- Japan's benchmark Nikkei stock index closed at a more than two-month low on Tuesday as the Bank of Japan's (BOJ) decision to allow its long-term interest rates to rise took the market by surprise.
The 225-issue Nikkei Stock Average dropped 669.61 points, or 2.46 percent, from Monday to close the day at 26,568.03, marking its lowest closing level since Oct. 13.
The broader Topix index, meanwhile, lost 29.82 points, or 1.54 percent, to finish at 1,905.59.
Market strategists here said the BOJ's decision to adjust its yields on the 10-year Japanese government bonds in a policy move to address mounting costs connected to its long-standing monetary easing measures caught investors off guard.
The BOJ said its yields on the 10-year Japanese government bonds would be adjusted from a range of plus and minus 0.25 percent to a range of plus and minus 0.5 percent.
"This is a step that the BOJ would have to take eventually but the market did not expect this could happen this soon," Shigetoshi Kamada, general manager at the research department at Tachibana Securities, was quoted as saying.
Other market analysts said the move which was widely expected to happen next year now paves the way for Japan's central bank to begin hiking its rates in line with its global peers, thus narrowing its interest rate gap.
"It is a virtual rate hike. Nobody had expected it in the market. It may be said that the BOJ Governor Kuroda paved the way for the exit of the bank's ultra-loose monetary policy by the end of his tenure next April," Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co., was quoted saying.
The BOJ's surprise move saw the yen spike against the U.S. dollar, hurting exporter and technology issues amid concerns further moving towards monetary tightening by the central bank as with the U.S. Federal Reserve's hawkish moves, which could damage the Japanese economy, analysts said.
By the close of play, real estate, precision instrument and transportation equipment issues comprised those that declined the most.
Olympus tumbled 5.1 percent, while Mitsubishi Motors tumbled 8.9 percent.
Among high-tech issues, chipmaking equipment manufacturer Tokyo Electron lost 3.5 percent, while Advantest dropped 3 percent.
Technology investor SoftBank Group weighed on the broader marker, losing 4.8 percent, but the banking, insurance and brokerage sectors helped trim losses, jumping 5.1, 4.5 and 0.2 percent, respectively.
By the close of play, issues that fell outpaced those that rose by 1,612 to 205, while 21 ended the day unchanged.
On the Prime Market on Tuesday, 1,843.92 million shares changed hands, rising from Monday's volume of 971.32 million shares.
The turnover on the second trading day of the week came to 4,075.68 billion yen (30.76 billion U.S. dollars). ■