Bank Of Japan Raises Interest Rate To Highest Level Since 2008

(Bloomberg) -- The Bank of Japan raised its key policy rate Friday to the highest level in 17 years, as Governor Kazuo Ueda continues his mission to return to central bank orthodoxy.

Ueda and his fellow board members lifted the overnight call rate by a quarter-percentage point to 0.5% at the end of a two-day meeting, according to a statement from the central bank. The decision to hike was in line with market expectations. The BOJ said it will continue to raise rates if its economic outlook is realized.

The move follows a report earlier Friday showing consumer prices excluding fresh food rising at a faster pace of 3%, well above the central bank's inflation target.

The yen briefly weakened after the decision before returning to around the 155.94 mark against the dollar.

Ueda's third rate hike in less than a year was widely expected after he and his deputy hinted that a move was in the pipeline last week. That's in stark contrast with July when the BOJ's previous rate increase caught many investors off guard and contributed to a global market meltdown and the biggest ever daily drop in Japan's Nikkei 225 stock index.

Traders had almost fully priced in a rate change while about three quarters of economists predicted the move in a Bloomberg survey released last week. That makes the pace of further hikes a key focus for this meeting.

Ueda will elaborate on the thinking behind the decision and the outlook for inflation at a press briefing that typically begins at 3:30 p.m.