The currency intervention campaign, which has provoked criticism in Washington and deep concern in London, is thought by Japanese officials to be no longer necessary because the country’s economic recovery is gathering strength. Officials also believe that the country’s export outlook is positive and that there is no more need to weaken the yen artificially. BoJ sources indicated that they would intervene in the market only when there was extraordinary volatility, but made clear that the unprecedented dollar purchases of the past seven months were formally over.

The new confidence at both the BoJ and the Ministry of Finance means they will no longer buy dollars even to smooth the sort of sudden price spikes that have prompted intervention in the past. “Even if the market shows volatility we believe that things are not so fragile now,” the BoJ sources said in an exclusive briefing. “We have reached the point where we are confident that the Japanese recovery no longer depends on export strength . . . the interventions have served their purpose.”

The dramatic policy switch draws a line under a controversial and record-breaking government effort to manipulate currency rates by supporting the falling dollar against the yen. The intervention drive, which began in earnest last September, has left Japan with paper trading losses of more than £50 billion.

British and US authorities said that the colossal accumulation of dollar assets threatened to destabilise the US and international economy.

The decision comes in the wake of a Finance Ministry report last Thursday showing that Japan’s auto and electronics makers are thriving and that the country has moved into trade surplus with China for the first time in ten years.

The question of whether the Japanese Government would pull out of currency intervention has been a matter of intense market speculation and political controversy as Tokyo has been criticised by various Asian governments, including China’s, for attempting to drive down the yen. Market speculation heightened last week as the dollar slipped to a five-week low of 105.6 yen.

Throughout that period, however, senior officials at the Finance Ministry maintained that the state remained committed to stepping into the markets.

The end of intervention has apparently been brought about by Toshihiko Fukui, the BoJ governor, who has restored confidence in the Japanese economy since his appointment a year ago and won plaudits from international financial authorities for his deft monetary management.

News that Japan has officially ended its campaign could itself prompt volatility and perhaps a fall in the dollar but the BoJ is confident that the country’s companies can now resist the effects of a stronger yen.

Mr Fukui, marking the end of his first full year in the BoJ hot seat, is confident that a true recovery is under way and that the painful restructuring of big Japanese manufacturing companies has now largely run its course. With that process at an end, larger corporations are expected to begin shifting from “downsizing” to new investment.

There is also optimism at the central bank about the once-beleaguered banking sector and a firm belief that the average proportion of bad assets on their books will be reduced from their current 6.5 per cent to a manageable 4 per cent next year.

The BoJ believes that these factors, in combination, will stimulate the domestic demand cycle that is necessary to reduce the Japanese economy’s heavy reliance on export strength.

Those close to the well-regarded Mr Fukui believe that he does remain concerned by several troubled areas of the Japanese economy. There remains a concern about deflation and the central bank is more focused on the consumer price index, which for the Tokyo metropolitan area fell 0.1 per cent this month, rather than the rosier GDP figures that showed that the Japanese economy grew at an annualised rate of 6.5 per cent in the last quarter.

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