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STORY: The Bank of Japan shocked markets on Tuesday (December 20).

It made a surprise tweak to its bond yield control that allows long-term interest rates to rise more.

It allowed the 10-year bond yield to move 50 basis points either side of its 0% target - wider than the previous 25 basis point band.

Investors had expected the BOJ to make no changes to its yield curve control, at least until Haruhiko Kuroda steps down as Governor in April.

Kuroda denied the move was an interest rate hike.

"First of all, by improving the functioning of the market, this measure is intended to ensure that the effects of monetary easing, starting with yield curve control, spread more smoothly through companies and the financial sector. This is not an interest rate hike."

The central bank kept its yield target unchanged and said it would sharply raise bond buying.

A sign the move was a fine-tuning of its current ultra-loose monetary policy, rather than a withdrawal of stimulus.

Kuroda said the move was aimed at ironing out distortions in the shape of the yield curve.

He also wants to make sure the benefits of the bank's stimulus program are directed to markets and companies.

Investors were caught so off guard that shares tanked, while the yen and bond yields spiked.

The share average on Japan's benchmark Nikkei dropped 2.5% after the decision.

The dollar also fell to a four month low against the yen.