The two-year note yield was up by less than a basis point from Friday at 2.678 percent. If that boosts future rate hike bets, it mayput further pressure on the BOJ to reform its policy stance. Repeated purchases of JGBs have robbed the bond market of liquidity, and near-zero rates under YCC have strained bank lending.

Spot gold XAU= eased 0.2 percent to $1,220.32.

While keeping unchanged its two major benchmarks - the negative interest rate and 10-year yield target - the BoJ took a number of steps to alleviate the strain on banks and the market distortions stemming from its policy.

Yields on U.S. Treasury bonds were up on Monday morning, with the 10-year yield at a six-week high, as investors sold government bonds on the growing speculation that the Bank of Japan may adjust its ultra-loose monetary policy at its meeting this week. "It's a hard balancing act and the central bank will need to get its messaging right", Bank of New Zealand senior markets strategist Jason Wong said in a note.

Japanese shares pared losses while the yen fell and yields on Japanese and US bonds declined on Tuesday after the BOJ decision, which stayed away from making drastic changes to its accommodative policy.

The greenback had pared some of its gains about two hours after the decision, trading 0.2 percent higher at 111.30 yen.

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The BoJ will consider changes to its massive stimulus program to make it more sustainable, such as allowing greater swings in interest rates and widening its stock-buying selection, Reuters reported last week, citing people familiar with the central bank's thinking. The statement now reads that "the Bank intends to maintain the current extremely low levels of short and long-term interest rates for an extended period of time".

Bank of Japan (BoJ) governor Haruhiko Kuroda pushed through changes to his radical monetary stimulus programme as the central bank prepares for a longer struggle to stoke inflation.

They also cut their forecasts for inflation for fiscal years 2018 to 2020, from 1.3%, 1.8% and 1.8% to 1.1%, 1.5% and 1.6%, respectively. Such a move, part of what is referred to as its yield curve control policy, could make banks' profitability improve and possibly lead to higher inflation.

"The BOJ never had, and under Kuroda probably never will have, any intention of turning hawkish", said Roberto Perli, a partner at Cornerstone Macro LLC in Washington and a former Fed economist.

The euro has had problems of its own as the European Central Bank emphasized that rates would not be rising until the second half of next year.

"Lacklustre trading continued as investors want to know the results of Japanese and United States central bankers' policy decisions", Yoshihiro Ito, chief strategist at Okasan Online Securities, said in a commentary.


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