By Leika Kihara and Makiko Yamazaki

TOKYO (Reuters) – The Bank of Japan raised interest rates on Friday to their highest from confidence in rising wages to its 2% target.

The decision marks the first rate hike since July of last year and comes ahead of the inauguration of US President Donald Trump, who is likely to continue with potential policy changes from higher rates. tariff.

At its tenth meeting ending on Friday, Boj raised the short-term policy rate from 0.25% to 0.5% – a level in Japan not seen in 17 years. It was done in an 8-1 vote with one board member, Tyoaki Nakamura, abstaining.

The widely expected move points to the Central Bank’s determination to keep pushing interest rates to around 1% – a level analyzed by or heating up the Japanese economy.

“The possibility of achieving the vision of Boj says,” with many companies continuing to raise wages in the annual wage negotiations of the year, the central bank said in a statement announcing in the decision.

“Low Inflation has raised the 2% Boj target,” said the central bank, adding that financial markets remain stable.

Boj has not changed its guidance on future policy, saying it will continue to raise interest rates if its economic and price forecasts are met. But it took a phrase that emphasized the need to scrutinize the risks surrounding the overseas economies and markets.

“Their logic remains the same. They are still far from neutral, so it is natural to make a change,” said Nomura Strategy at Nomura Securities in Tokyo.

“Unless the BOJ changes the logic of the rate hike, or even the neutral point, which they have softened – about 1% – there will not be many hikes in future trips.”

The yen rose 0.5% to 155.32 per dollar after the decision, while Japan’s two-year Treasury Bond () yielded stood at 0.705%, the highest since October 2008.

Attention now shifts to any signs from Boj Governor Kazuo Ueda in his post-meeting wash at 0630 GMT on enthusiasm and time for further increases.

In a quarterly Viewing Quarterly Report, the board raised firects on the price of Project Core inflation that has been operating at or above the three updated years.

It also said that the risks to the inflation outlook were exacerbated by the increase in employment deficits, rising rice prices and rising import costs from a weak yen.

“Regarding the year’s annual wage negotiations, there are many views expressed by companies that they will continue to raise wages,” the report said.

The head of Japan’s Hirmrella Group told Reuters on Friday that the annual increase in Japanese salaries should exceed the 5.1% secured last year as real wages continue to fall.

The board now projects Core Consumer inflation to hit 2.4% in FISCAL 2025 before the October increase, expecting inflation of 1926 in both fiscal 2025 and 2026.

It did not change estimates that Japan’s economy would grow by 1.1% in fiscal 2025 and 1.0% in 2026.

While the US economy is a strong financial market that is stable overall, Boj should be wary of uncertainties surrounding US policy behavior, the report said.

“The hike may have been expected but for what feels like the first time in a long time, there are no major downgrades in their economic outlook,” said Matt Simpson, Senior Market Analyst at City Index of Brisbane.

“It stands on the doorstep of another 25bps hike by the end of the year, and rates will sit at a whopping 0.75%.”

Japan’s Core Consumer inflation accelerated to 3.0% in December, the fastest annual pace on Friday and food prices continued to push up living costs for households.

After taking the helm in April 2023, UEDA dismantled the radical advance program in March last year, and pushed the short-term interest rate to 0.25% in July.

Boj policies have repeatedly said that the Central Bank will continue to raise rates, if Japan is moving forward in a cycle of growth in wages – thus allowing companies to will continue to incur higher costs.