The Bank of Japan (BOJ) has raised its main interest rate by a quarter percentage point - the highest in more than a decade.
But the yen retreated on currency markets as the central bank signalled caution on further increasing the rate, now at the 0.50 per cent.
The BOJ said the economy was likely to continue growing and any further adjustments would be gradual.
In a news conference, Toshihiko Fukui, the BOJ governor, said the central bank did not have specific schedules in mind for future rate hikes.
In pushing up the cost of money at a time when many politicians have expressed concern about the Japanese economy, the central bank has underlined its independence.
Rift
but some analysts believe the BOJ's hawkish stance now may influence the Japanese government when it nominates future board members in two months, when the terms of two of the nine board members expire.
Glenn Maguire, chief economist at SG Hong Kong, said the likelihood of further rate rises had been reduced.
"It will be difficult to do anything before the second half of this year," he said.
"By moving against the government's clear stance on interest rates, the likelihood is that more dovish members will be nominated to the board."
The government, playing down the idea of any rift, said its monetary policy was up to the BOJ.
Major policy move
Koji Omi, the Japanese finance minister, told parliament: "I understand the BOJ reached its conclusion after a thorough examination and discussion."
But a ruling party heavyweight, Hidenao Nakagawa, was quick to say the BOJ would be held responsible for its rate hike decision.
Japanese politicians are sensitive about the economy ahead of the parliament's upper house election in July.
The rise marks the third major policy move in less than a year.
Last March, the BOJ ended its so-called quantitative easing policy of pumping excess money into the banking system.
In July it followed up with a rate rise to 0.25 per cent from virtually zero, the first rate increase in six years.