The Bank of Japan raised interest rates for the first time in 17 years

Japan's central bank (BoJ) decided yesterday to raise the benchmark interest rate for the first time in 17 years, ending a long-term policy of negative interest rates aimed at stimulating the economy, AP reports.

At the end of the monetary policy committee meeting, the Bank of Japan announced that it will apply a short-term reference interest rate between 0 and 0.1%, compared to minus 0.1%, which was the level at which it stood since January 2016. This is the first decision to increase the cost of credit adopted by the BoJ since February 2007.

"Negative interest rate policy combined with other measures to inject money into the economy and keep borrowing costs low have played their part," Bank of Japan Governor Kazuo Ueda said.

Japan's central bank has an inflation target of 2 percent that it has used as a benchmark to determine whether Japan has finally escaped deflationary trends. But the bank remained cautious about "normalizing" monetary policy or abandoning negative lending rates, even after data showed inflation had moved closer to target in recent months.

Ueda noted that there has been "a positive cycle" of gradual wage and price growth, while stressing that monetary policy will remain loose for a while.

Although Japan's private sector banks and other financial organizations will make their own decisions on interest rates, the BoJ governor said he does not foresee any significant hike.

"The central bank will watch any major movement in interest rates, which would cause confusion, Ueda added, noting: "We took the decision to increase because we predicted a stable and continuous inflation of 2%." Bank of Japan

does not estimate, however, that its 2% inflation target will be reached "in a stable and sustainable manner" earlier than 2025-2026.

We recall that, this month, some analysts cited by CNBC predicted that the Bank of Japan would change the course of its monetary policy in the next two months. According to them, while most major central banks are looking to ease monetary policy after more than two years of aggressive tightening aimed at combating inflation, the Bank of Japan's decision will be in the opposite direction.