In a significant move, the Bank of Japan (BOJ) has hiked interest rates to their highest level since the 2008 financial crisis. This decision, announced on Friday, highlights the central bank’s confidence that rising wages will help keep inflation steady around its 2% target.

This marks the BOJ’s first rate increase since July last year, with the short-term policy rate jumping from 0.25% to 0.5%. The decision was made in an 8-to-1 vote, reflecting a strong consensus among policymakers. The central bank also signaled that further hikes could be on the horizon if economic conditions and price forecasts align.

The BOJ’s move comes at a time when Japan’s core inflation hit 3.0% in December, the fastest pace in 16 months. Rising fuel and food costs are pushing up living expenses, but the bank believes wage growth will help balance the equation. In a statement, the BOJ noted that many firms plan to continue increasing wages steadily, which supports their outlook.

The yen strengthened slightly after the announcement, rising 0.5% against the dollar, while Japanese government bond yields also climbed. Attention now turns to BOJ Governor Kazuo Ueda’s upcoming briefing, where he may provide more details on the timing and pace of future rate adjustments.

This hike is a big step for Japan, which has kept rates ultra-low for years. While some analysts believe the bank still has room to raise rates further, others caution that the pace may remain gradual to avoid disrupting the economy. For now, Japan’s central bank seems focused on maintaining stability while keeping an eye on global uncertainties.