(Bloomberg) -- Japanese stocks tumbled as the yen surged after the Bank of Japan surprised markets by doubling a cap on bond yields, signaling possible policy normalization by the central bank.

The blue-chip Nikkei 225 Stock Average plunged 2.5%, the most since Oct. 11, while the broader Topix slid 1.5%. The yen strengthened about 2.8% against the dollar.

The quick slide came after the central bank said it would widen its yield curve control, allowing Japan’s 10-year bond yields to rise to 0.5% versus the previous upper limit of 0.25%. The central bank kept its target for the yield unchanged at around zero percent.

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While some market participants were expecting a loosening of the YCC, the 0.5% level was seen as “sudden” and surprising, according to Makoto Furukawa, chief portfolio strategist at Mitsubishi UFJ Morgan Stanley Securities.

Technology and auto stocks tumbled as a stronger yen is seen as negative for exporter earnings. Financials surged on prospects for better earnings from higher interest rates. The nation’s largest lender Mitsubishi UFJ Financial Group Inc. jumped 6%, the most since March 2020.

Japanese stocks have outperformed this year on the BOJ’s divergence from the tightening course of other major central banks. The Topix is down 4.4% in 2022 compared with losses of about 20% each in the S&P 500 Index and MSCI World Index.

Pressure had been mounting on the BOJ to shift away from its years-long easy-money campaign, however, especially as Governor Haruhiko Kuroda is due to step down in April. Some observers interpreted Tuesday’s decision as laying the groundwork for a policy change.

“It is hard for the BOJ to resist market forces when both the US and Europe are raising rates, however the timing came as a surprise,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd.

--With assistance from Winnie Hsu.

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