The yen fell on Thursday after the Bank of Japan scrapped its ultra-loose monetary policy of the past five years but said that restrained inflation may keep interest rates very low for some time.
The end to the BoJ's quantitative easing policy of flooding the banking system with excess cash marks the central bank's shift back to a more traditional policy of targeting short-term rates but still at zero, as it did before launching the emergency policy.
Some analysts said government officials who have been critical of a shift may seize on the central bank's inflation reference rate of zero to 2 percent as a reason to call for the BoJ to be cautious about raising rates.
Low rates would keep the yen hampered as one of the world's lowest yielding currencies, especially as markets see the Federal Reserve and European Central Bank extending their credit tightening campaigns to keep inflation pressures at bay.
To end quantitative easing, the central bank said it would decrease the 30-35 trillion yen ($255-$297 billion) target for current account balances that banks hold at the central bank over a few months.
But beyond, the BoJ said the overnight call rate would be gradually adjusted, but if inflation pressures are restrained, it will keep rates very low for some time.
Investors had seen the BoJ raising rates to 0.25 percent or 0.5 percent by year-end but not much more than that. The BoJ has held rates below 0.5 percent since 1995.
The dollar jumped as high as 118.31 yen after hovering around 117.70 yen when Japanese public broadcaster NHK first reported the BoJ was ending quantitative easing. The dollar settled back to 118.15 yen, up 0.3 percent from late New York trade on Wednesday.
The euro also gained 0.3 percent to 140.85 yen after surging up to 141.11 yen.
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