TOKYO: The Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis, underscoring its confidence that rising wages will keep inflation stably around its 2% target.
The decision marks its first rate hike since July last year and comes days after the inauguration of U.S. President Donald Trump, who is likely to keep policymakers vigilant ahead of potential repercussions from threatened higher tariffs.
At the two-day meeting concluding on Friday, the BOJ raised its short-term policy rate from 0.25% to 0.5% - a level Japan has not seen in 17 years. It was made in a 8-1 vote with board member Toyoaki Nakamura dissenting.
"The likelihood of achieving the BOJ's outlook has been rising," with many firms saying they will continue to raise wages steadily in this year's annual wage negotiations, the central bank said in a statement announcing the decision.
The move underscores the central bank's resolve to steadily push up interest rates to around 1% - a level analysts see as neither cooling nor overheating Japan's economy.
Attention now shifts to any clues from BOJ Governor Kazuo Ueda in his post-meeting briefing at 0630 GMT on the pace and timing of further increases.
In a quarterly outlook report, the board raised its price forecasts on growing prospects that broadening wage gains will keep Japan on track to sustainably hit the central bank's inflation target.
Japan's core consumer inflation accelerated to the fastest annual pace in 16 months in December, data showed on Friday, in a sign rising fuel and food prices continue to push up living costs for households.
After taking the helm in April 2023, Ueda dismantled his predecessor's radical stimulus programme in March last year, and pushed up short-term interest rates to 0.25% in July.
BOJ policymakers have repeatedly said the central bank will keep raising rates, if Japan makes progress in achieving a cycle in which rising inflation boosts wages and lifts consumption - thereby allowing firms to continue passing on higher costs. - Reuters
