MUMBAI, Dec 20 (Reuters) - The Indian rupee declined against the dollar on Tuesday after the Bank of Japan's unexpected hawkish shift prompted a rise in Japanese and U.S. yields, and impacted risk appetite.
The rupee was at 82.8050 per U.S. dollar by 10:38 a.m. IST, compared with 82.7050 in the previous session. The rupee had opened marginally higher at 82.66.
Bond yields in United States and Japan jumped after the BOJ decided on Tuesday to allow long-term interest rates to rise more by widening the band around its yield cap.
The 10-year Treasury yield climbed 3.71%, the highest level this month. The Japanese yen rallied 2.6% to 133.24, a four month high.
Japan led Asian shares lower and futures indicated more losses for the S&P 500 Index. The U.S. equity gauge is on a four-day losing run, weighed by a weak growth outlook and interest rate concerns.
The BOJ's unexpected change in policy comes alongside U.S. Federal Reserve officials indicating that rates were likely to rise more and remain high for the whole of next year. The European Central Bank too has taken a more hawkish tone relative to expectations.
This is likely to weigh on the outlook for rupee and other Asian currencies in the new year, according to traders.
Meanwhile, USD/INR forward premiums were little changed following their recent surge. The 1-year implied yield is at 2.06%. The 1-year is up more than 45 bps from recent lows.
Higher premiums "attract exporters to participate in every uptick (on USD/INR)," said Amit Pabari, managing director at CR Forex. He expects USD/INR to top out near the 82.75 to 83.00 zone. (Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)
