Its decision, announced after a two-day policy meeting, caused the yen to surge briefly before weakening to levels above 153 per dollar.

Ueda said the central bank could "respond with monetary policy" if currency moves significantly drive inflation and wages, suggesting sharp yen falls could affect the timing of the next rate hike

In its first increase in 17 years, the Bank of Japan said it was lifting its short-term policy rate from -0.1 percent to between zero and 0.1 percent.