The Bank of Japan's surprise decision to allow long-term interest rates to move in a wider range will likely raise borrowing rates for households taking out housing loans.

Fixed housing loan rates track movements in Japanese long-term government bond yields. The BOJ on Tuesday widened the trading band for 10-year Japanese government bond yields between minus 0.5 percent and 0.5 percent, wider than the previous range of minus 0.25 and 0.25 range.

"Each bank tends to decide on which rates should be applied toward the end of a month. So it's likely that rates applied from January will rise," said Takashi Shiozawa, an executive at MFS Inc., which operates a service allowing consumers to compare mortgage rates.

"We will likely see more people opting for floating interest rates whose raises will be rather limited," Shiozawa said, adding that even a small increase in interest rates would boost mortgage payments.

The BOJ has set short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bond yields around zero percent. This has depressed borrowing costs for households and companies.

Governor Haruhiko Kuroda said that the widening of the band is in no way a rate hike, monetary tightening or a review of the so-called yield curve control.

Higher borrowing costs could pour cold water on capital investment, which has been recovering after it was hurt by the COVID-19 pandemic. For heavily-indebted Japan, debt-servicing costs will also increase.

The unexpected monetary policy decision sent the yen surging against the U.S. dollar and Japanese bond yields jumped.

The BOJ's persistence with monetary easing had sharply weakened the yen, boosting import costs for resource-scarce Japan.

A range of imported items such as wine, meat and cheese could become cheaper and overseas trips will be less expensive if the yen strengthens.

Inflation in Japan has hit a 40-year high, partly because of the yen's weakness. The government is seeking to revive inbound tourism, as a softer yen makes visiting Japan cheaper for overseas travelers.

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