The BoJ said it was increasing its benchmark borrowing rate by 25 points to 0.5%, its highest level since 2008 in the global financial crisis.

The move followed data showing that core inflation in the world’s fourth-biggest economy accelerated to 3% in December, supporting the case to further tighten monetary policy.

“Japan’s economic activity and prices have been developing generally in line with the Bank’s outlook, and the likelihood of realising the outlook has been rising,” the bank said in a statement.

Even as other central banks have raised borrowing costs in recent years, the BoJ has remained an outlier, maintaining an ultra-loose stance in an attempt to spark growth and inflation.

But it concluded last March that Japan’s “lost decades” of economic stagnation and static or falling prices were over, finally lifting rates above zero.

That first hike since 2007 was followed by another in July, the second of which caught investors off guard and caused major market volatility.

This time, the BoJ has prepared markets for an increase, and around three-quarters of economists polled by Bloomberg News had predicted one.

The two conditions set by BoJ chief Kazuo Ueda—wage hikes and no major volatility following Trump’s inauguration—appear to have been met.

Trump tariffs

The hike was the biggest hike since February 2007. They were cut in 2008 to deal with the impact of the global financial crisis.

The BoJ was also expected to signal more rate hikes going forward, assuming its expectations for the world’s fourth-biggest economy come to pass.

“With no market turbulence after Trump’s inauguration,” conditions for the BoJ to hike its policy rate have been met, said Ko Nakayama, chief economist of Okasan Securities Research.

“Raising just 25 basis points to 0.5% won’t cool the economy,” he said before the decision was announced.

There are, however, concerns among Japanese companies that Trump could throw a spanner into global trade and drive up inflation with major hikes in U.S. import tariffs.

Japan’s economic growth also slowed between July and September, partly because of one of the fiercest typhoons in decades and warnings of a major earthquake, which did not materialise.

“The Bank of Japan is dialling back monetary policy support despite the poor run of economic data. The weak yen is a key reason,” Moody’s Analytics said in a note.

Data released Friday showed that headline Japanese inflation hit 3.6% in December, or 3.0% adjusted for food prices.

The core reading remained above the BoJ’s 2% inflation target, which it has surpassed every month since April 2022.

Marcel Thieliant at Capital Economics said Japanese inflation was set to remain above the BoJ’s objective “for a while yet”.

As a result “we’re sticking to our forecast that the policy rate will reach an above-consensus 1.25% by the end of next year”, Thieliant said before Friday’s announcement.