Japan's central bank scrapped its super-loose monetary policy today but said it would keep short-term interest rates around zero for now.
The decision represents a first step towards an eventual interest rate rise in a country where rates have been virtually zero for years and reflects the central bank's confidence that a seven-year battle against deflation has been won.
With the US Federal Reserve and the European Central Bank already raising rates, the shift by the Bank of Japan (BoJ) also signals that an era of cheap money is ending worldwide, boosting the risk of volatility in global financial markets.
Analysts had been divided over whether the BoJ could move this month or next, but political pressure to hold fire so as not to scupper a hard-won economic recovery may have strengthened the central bank's resolve.
The "quantitative easing" policy, which involved flooding the banking system with excess funds, was adopted as an emergency measure in 2001 to prevent a credit crunch that had threatened to further damage an already shaky economy.
The BoJ said it would no longer set a target for the amount of surplus funds in the money market but instead adopt a more conventional tactic of guiding the unsecured overnight call rate, which has been pinned at around 0.001 per cent for several years.
Tokyo share prices extended earlier gains and the benchmark Nikkei average closed up 2.62 per cent amid relief that uncertainty was over.