After Japan's central bank unexpectedly adjusted its bond yield limits on Tuesday, which will allow long-term interest rates to climb higher, the yen spiked and Asian markets plummeted.
The Bank of Japan increased the allowed range for long-term rates from 25 basis points to 50 basis points either side of that, while leaving the overall policy settings intact.
The decision caused an immediate increase in the value of the yen, and the dollar fell by 2.71% to a four-month low of 133.16.
In response, the Nikkei benchmark index (.N225) fell 2.71% after opening the day in positive position.
The largest MSCI index of Asia-Pacific stocks not listed in Japan (.MIAPJ0000PUS) decreased by 1.6%.
The BOJ's decision was interpreted as an indication that the factors that this year drove the yen to three-decade lows may be starting to shift.
"The move came earlier than I had expected but a step towards the normalisation process of policy in Japan," Kerry Craig, JP Morgan Asset Management's global markets strategist, told.
Given the differences in the stances taken by American and Japanese policymakers, the market ramifications are particularly noticeable in the FX markets.
"While there is still a wide gap, the hint that the BOJ is moving incrementally away from ultraloose policy should be yen positive in the near term."
Australian equities (.AXJO), which are traded elsewhere in Asia, increased their previous losses to lose 1.54% in afternoon trade.
China's CSI300 Index (.CSI300) down 1.62%, while Hong Kong's Hang Seng Index (.HSI) fell 1.9%.
Euro Stoxx 50 futures for the entire region were down 1.23% at 3,772, German DAX futures were down 1.32% at 13,832, and FTSE futures were down 0.83% at 7,306.5 in early European futures trading.
The S&P 500 e-mini U.S. stock futures were down 0.85% at 3,812.8.
The yield on benchmark 10-year Treasury notes increased to 3.6825% in Asian trading from its Monday closing level of 3.583% in the United States.
The two-year yield, which increases as market participants anticipate higher Fed fund rates, was at 4.2848% vs the US closing of 4.262%.
Investors have been extremely concerned about China's reopening to the rest of the world following nearly three years of COVID lockdowns.
On Monday, Credit Suisse changed its assessment for China's stock markets for the coming year from neutral to outperform.
"The whole narrative of China has changed, it's gone from COVID zero that was putting the economy under pressure and there's now an intention to move towards a reopening," Suresh Tantia, Credit Suisse's senior investment strategist.
"And as that happens, we will see an recovery in China's economy and markets."
American crude increased by 0.41% to $75.5 per barrel. Brent crude rose to $79.87 per barrel.
Gold on the spot market increased slightly to $1,790.83 per ounce.
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