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(Bloomberg) -- Yield curve for Japan’s government debt lifts with the 10-year sovereign rising above zero for the first time in six months as the BOJ shifts tack to exceed its 2% inflation target.

• Calling the new policy “QQE with Yield Curve Control,” BOJ says it will buy JGBs such that 10-year yield remain at the current level of around zero percent
• BOJ will also buy JGBs at designated yields, and offer fixed-rate funds-supplying operations for up to 10 years
  • Central bank left negative interest rate at -0.1% as well as annual pace of JGB purchases at 80t yen
  • BOJ commits to expanding the monetary base until year- on-year rate of increase in CPI exceeds target
• USD/JPY climbs as much as 1.1% to 102.79; 10-year yield climbed to as high as 0.005%, before trading at -0.03%
  • NOTE: BOJ leaks steepen yield curve with questions over method

MARKET VIEWS:

• Norinchukin Research Institute (Takeshi Minami, chief economist)
  • First option for the monetary policy seems to have shifted to deepening negative interest rate to steepen the yield curve; today’s decision sets up the environment to do that in the future
  • 10-year yield may trade near 0% as the BOJ commits to that line; the central bank probably wants to steepen the curve up to 5-year tenor and therefore, close attention should be paid to repurchase program
  • BOJ didn’t add to easing, but delivers framework for further easing, reducing downside risk for USD/JPY

• JPMorgan Chase & Co. (Takafumi Yamawaki, chief rates strategist)
  • BOJ is unlikely to cut short-term rates excessively; trying to control 10-year yield near 0% suggests 7-year rate on the futures will probably trade slightly below zero
• Volatility on yield curve will probably drop

• Bank of Tokyo-Mitsubishi UFJ (Minori Uchida, Tokyo-based head of global market research)
  • Japanese bank shares, JGB 10-year yield and USD/JPY are rising on waning concerns over side effects of negative rate policy following BOJ’s decision
  • Flexible monetary base target may spur speculation of reduced QE; BOJ’s scrapping of target for average maturity of govt bond holdings would shorten average maturity, not add to existing accommodative policy
  • Today’s BOJ decision is unlikely to put downward pressure on yen, making it hard for USD/JPY to rise above 103; maintains view that USD/JPY will gradually drop, falling below 100 level toward year-end

• Citigroup (Todd Elmer, FX strategist)
  • BOJ introducing two wrinkles that were not fully discounted may be seen as a net positive for risk appetite
  • Implication is that BOJ is giving itself additional freedom to shape yield curve, and it’s voicing that this is an explicit aim
  • Additional freedom to maintain the policy track indefinitely

• RBC Capital Markets (Sue Trinh, head of Asia FX strategy)
  • BOJ appears to be laying the groundwork for more easing going forward but wants to take care of the banks first
  • From a monetary-policy perspective this is a bit underwhelming as there are no aggressive moves
  • Expects USD/JPY to move below 100 in coming weeks, if Fed holds rates unchanged

• FX Prime by GMO Corp. (Hiroshi Yanagisawa, a dealer)
  • Gains in JGB yields following BOJ’s decision are helping to boost U.S. interest rates, supporting USD
  • Markets seem to welcome BOJ’s plan to adjust its exchange-traded fund purchases to buy more ETFs tracking the Topix
  • Treasuries 10-year yield now up 2 bps to 1.714%

• Mizuho Bank (Vishnu Varathan, economist)
  • The strong easing bias and the alleviation of banking sector risks -- buoying Nikkei via relief in banking stocks -- is propping up dollar-yen

• Nordea (Amy Zhuang, senior analyst)
  • BOJ shift in policy framework could be read as sign that it is reaching a limit with easing and isn’t as confident about monetary policy as its policy assessment suggests
  • Disappointed that no new measures were introduced
  • Reluctance to cut rates further may reflect resistance from financial institutions, which have complained about impact of negative rates on earnings and about low long- term yield

• SMBC Nikko Securities (Takayuki Atake, credit analyst)
  • Japanese companies may be encouraged to continue selling longer-term bonds if there is a feeling that interest rates could rise
  • Such sales will be affected more by underlying government bond yields rather than credit issues

--With assistance from Hiroko Komiya, Yumi Ikeda, Jimmy Zhu, Netty Ismail, Mark Cranfield, Finbarr Flynn and Subhadip Sircar. To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net; Daisuke Sakai in Tokyo at dsakai2@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net