Japan's central bank has raised the borrowing cost to its highest level in 17 years following an acceleration in consumer price inflation in December.
The Bank of Japan (BOJ) increased its short-term policy rate to "around 0.5 percent" shortly after the latest economic data revealed the fastest price growth in 16 months last month.
The previous interest rate hike by the BOJ in July, coupled with a weak US jobs report, took global investors by surprise, triggering a stock market selloff.
In an effort to prevent another market upheaval, the bank's governor, Kazuo Ueda, had foreshadowed this recent rate hike.
Official reports released on Friday showed a 3% increase in core consumer prices in Japan from a year earlier in December.
This decision represents the first rate hike by the BOJ since July and comes soon after Donald Trump's return to the White House.
By increasing rates now, the bank positions itself to potentially lower rates in the future if required to stimulate the economy.
The move underscores the central bank's gradual approach to raising rates to approximately 1%, a level considered neutral for economic effects.
The BOJ has indicated its intention to persistently raise rates from the current ultra-low levels.
Neil Newman, the strategy head at Astris Advisory Japan, mentioned that rates will continue to rise with rising wages, sustained inflation above 2%, and some economic growth.
We anticipate another 25-basis point hike in six months, noted Stefan Angrick, a Japan economist at Moody's Analytics.
This hike eliminated countries with negative interest rates, which require individuals to pay for depositing money in a bank, a strategy employed by several nations to spur spending rather than saving.