By Ese Erheriene 

Japan's Nikkei Stock Average jumped Wednesday after the Bank of Japan kept a key rate unchanged and announced it would introduce a 10-year interest-rate target.

The Nikkei Stock Average reversed earlier losses to close 1.9% higher at 16807.62 points. Markets were also broadly higher elsewhere in Asia. Australia's S&P/ASX 200 closed up 0.7%, Hong Kong's Hang Seng Index gained 0.6% and Korea's Kospi ended 0.5% higher.

Japan's central bank said it would keep its key interest rate steady at minus 0.1%, and expand its monetary base until inflation stabilized above 2%. The BOJ also said it aims to guide the yield on 10-year Japan government bonds to zero as part of its effort to steepen the yen yield curve.

The decision sparked buying, particularly in the financial sector, as concerns the BOJ would cut rates deeper into negative territory--which would hit bank profits among other effects--eased.

"They're trying some new things [and] they're going to target a different part of the yield curve, which is a bit more positive for the banks," said Kay Van-Petersen, Asia macro strategist at Saxo Capital Markets. "But I still don't feel that it's big enough. I think it will quickly get discounted by the market."

The Topix's banking subsector closed up 7%, with Mitsubishi UFJ Financial Group ending up 7.4%, Mizuho FG Financial Group adding 6.8% and Sumitomo Mitsui Financial Group closing up 7.3%.

Some in the market questioned whether the prospect of a steeper yield curve was necessarily good news for banks.

"The longer-term profitability of the banks is still an open question [as] you need to differentiate between real interest rates and nominal interest rates," said Daniel Morris, a senior investment strategist at BNP Paribas Investment Partners. "If you force the yield curve to be steeper by making longer-term real interest rates higher, that's arguably bad for the economy. So...it's hard to know what the net effect of that is."

After the central bank said it would target a 0% rate for 10-year JGBs, the yield on the newest 10-year Japanese government bonds climbed to briefly hit 0.005%, turning positive for the first time since March 11.

The Japanese yen initially strengthened 1% and then weakened 1.8% against the dollar, on an intraday basis, after the BOJ news. Investors' initial reaction was to buy the yen, before backtracking as the details of the central bank's position became clear.

The new framework made "investors feel how the BOJ is much more serious than before" in tackling slow growth and deflation, forcing some investors to unwind their long yen positions, said Daiwa Securities senior FX strategist Yukio Ishizuki.

The yen is now down about 0.2% against the greenback.

Chinese stocks caught an updraft after the country's two largest steel mills announced they would merge their listed entities. The Chinese steel sector surged early Wednesday, after Baoshan Iron & Steel said Tuesday it would absorb Wuhan Iron & Steel via an equity swap. The benchmark Shanghai Composite Index ended up 0.1% and the Shenzhen Composite Index closed up 0.3%.

Later on Wednesday, investors will be shifting their focus to the U.S. Federal Reserve's statement on interest rates due 1800 GMT.

Takashi Nakamichi Mitsuru Obe, Hiroyuki Kachi, Yifan Xie and Kosaku Narioka contributed to this article.

Write to Ese Erheriene at ese.erheriene@wsj.com

(END) Dow Jones Newswires

September 21, 2016 05:57 ET (09:57 GMT)