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Japan raises interest rates to highest level in 17 years

Tokyo Reuters —

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 stable around its 2% target.

The decision marks its first rate hike since July last year and comes days after the inauguration of US President Donald Trump, who is likely to keep global policymakers vigilant ahead of potential repercussions from threatened higher tariffs.

At its 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 to 1 vote with board member Toyoaki Nakamura dissenting.

The widely expected 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.

“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.

“Underlying inflation is heightening towards the BOJ’s 2% target,” the central bank said, adding that financial markets remain stable as a whole.

The BOJ made no change to its guidance on future policy, saying that it will continue to raise interest rates if its economic and price forecasts are realized. But it removed a phrase stressing the need to scrutinize risks surrounding overseas economies and markets.

“Their logic remains the same. They are still far away from neutral, so it’s natural to make an adjustment,” said Naka Matsuzawa, chief macro strategist at Nomura Securities in Tokyo.

“Unless the BOJ either changes the logic

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