LONDON, Dec 20 Reuters Euro zone government bond yields rose on Tuesday, echoing weakness in the Japanese market where yields hit a sevenyear high after the central bank surprised investors by loosening some of its strict controls over longterm interest rates.

The Bank of Japan kept broad policy settings unchanged, but widened the allowable band for longterm yields to 50 basis points either side of that, from 25 basis points previously.

Shares tanked and the yen and bond yields spiked following the decision, which investors had not expected to materialise before April, when Governor Haruhiko Kuroda steps down.

Treasury yields rose by as much as 13 basis points in Asia, which made for a weaker session in Europe, where German 10year yields rose 7 bps to 2.27.

Richard Maguire, a senior rates strategist at Rabobank, said there were two ways of looking at the BOJ decision the first, a nobrainer view that it had given up trying to control the yield curve, given rising global inflation and interest rates.

This, at least in theory, would prove a negative for bonds elsewhere, as Japanese fixed income investors repatriated cash in order to tap into higher rates at home, he said.

In practice, the opposite may be true.

The BOJ has been resolute in standing behind the upper limit of yield curve control. It is clearly a surprising move that theyve increased the upper band, but you could also argue that maybe they39;re confident themselves that the peak in interest rates is…