TOKYO (dpa-AFX) - The Bank of Japan raised its short-term interest rate to the highest in seventeen years on Friday as expected, aiming for a sustainable and stable achievement of the price stability target of 2.0 percent amidst rising wages.
BoJ policy board members, led by Governor Kazuo Ueda, voted 8-1 to raise the uncollateralized overnight call rate to around 0.5 percent from 0.25 percent. This was the highest since the global financial crisis in 2008.
The BoJ had ended its negative interest rate policy in March and last lifted the interest rate in July to 0.25 percent.
The decision was motivated by the momentum behind increased wages and the ongoing rise in inflation.
The central bank has hinted at the possibility of additional interest rate increases while highlighting its intention to exercise utmost caution in order to ensure that the economy remains stable.
'Real interest rates are expected to remain significantly negative after the change in the policy interest rate, and accommodative financial conditions will continue to firmly support economic activity,' the BoJ said.
The BoJ also released the latest macroeconomic projections on Friday where the bank lowered the economic growth estimate for fiscal 2024 to 0.5 percent from 0.6 percent. Growth projections for fiscal year 2025 was retained at 1.1 percent and the bank projected 1.0 percent growth for fiscal 2026, respectively.
Core inflation projection for fiscal 2024 was raised to 2.2 percent from 2.0 percent and that for fiscal 2025 was lifted to 2.1 percent from 2.0 percent. Core inflation for 2026 fiscal was forecast at 2.1 percent.
'If the outlook presented in the January Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation,' the bank said.
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