The yen steadied on Wednesday after its biggest daily gain versus the dollar in 24 years in the wake of a shock Bank of Japan tweak to monetary policy.

The BoJ move on Tuesday to allow yields on certain government bonds to move in a wider band was seen as a precursor to a possible interest rate hike next year, finally bringing the central bank in line with others around the world.

National Australia Bank's Ray Attrill said the "tweak has... been interpreted as putting the writing on the wall for a policy shift next year".

Tweak has... been interpreted as putting the writing on the wall for a policy shift next year- National Australia Bank's Ray Attrill

The announcement resulted in Japan's currency soaring to a four-month high against the dollar, with the US unit worth 130.58 yen.

A gain of 3.9 per cent for the yen on Tuesday was the biggest daily jump since 1998. 

One dollar was worth 131.87 yen on Wednesday.

"It would be safe to assume that the BoJ shift will likely fuel further yen strength on repatriation flows as local bond yields rise," noted Stephen Innes of SPI Asset Management.

The yen's gain continued to weigh on share prices of Japanese exporters on Wednesday but European stock markets made solid gains.

The BoJ move followed hikes to US and European interest rates last week and warnings by officials that tightening would likely go higher than initially expected.

A series of aggressive rate hikes this year is aimed at bringing decades-high inflation under control but higher borrowing costs have fanned speculation of a world recession.

Traders were keeping an eye also on China as it quickly reopens after almost three years of a zero-COVID policy of lockdowns and mass testing that hammered the world's number two economy.

However, there is a worry about the immediate impact of a spike in infections, with hospitals struggling, pharmacy shelves being stripped bare and crematoriums overwhelmed.

"Though unspoken, it is well understood that policymakers have decided to accept a sizeable COVID wave," said analyst Innes.