File: Japanese yen. AFP/Richard A. Brooks
TOKYO - The Bank of Japan hiked interest rates to a 30-year high on Friday and indicated more were in the pipeline as it said the economy had shown signs of improvement.
The unanimous vote to lift the main borrowing rate to 0.75 percent from 0.5 percent came hours after official data showed the country's core inflation rate held steady in November but was still well above policymakers' two percent target.
The bank began hiking rates from below zero in March last year as figures signalled an end to the country's "lost decades" of stagnation, with inflation surging.
However, with worries about the global outlook and US tariffs growing, it paused, with the last increase in January taking rates to their highest level in 17 years.
"Uncertainties over the US economy and its tariff policy are still remaining, but declining" compared with the last policy meeting in October, BoJ governor Kazuo Ueda told reporters.
Next year's annual wage hike negotiations will likely see sound increases, and the "possibility is high that the mechanism of a gradual rise in both wages and prices will continue" in line with the bank's main scenario of economy and prices, Ueda said when asked about reasons for the rate hike.
"Japan's economy has recovered moderately," bank officials wrote in a report released after the decision.
As long as economic activity and prices improved, they added, the bank would "continue to raise the policy interest rate and adjust the degree of monetary accommodation".
While Friday's increase was widely anticipated by analysts, "the board's hawkish messaging suggests that the tightening cycle has further to run", said Abhijit Surya of Capital Economics.
"Our own view is that the incoming data are more likely than not to surprise to the upside of the BoJ’s expectations," Surya added, forecasting rates will reach 1.75 percent in 2027.
The next timing and pace of rate hikes "depend on conditions of economy, prices, and financial situations", Ueda told reporters.
The yen weakened against the dollar after the announcement, which puts rates at their highest since 1995.
The yen has been under pressure in recent years mainly because of the big difference between US and Japanese rates.
The cheap yen has been blamed for pushing up import prices, contributing to inflation in Japan.