In a bold move, the Bank of Japan has bumped up interest rates to their highest level in nearly two decades. This marks the first hike since last summer and signals growing confidence in the economy’s ability to handle higher borrowing costs.

The central bank lifted its short-term rate from 0.25% to 0.5%, a level not seen since before the 2008 global financial crisis. The decision, supported by an 8-1 vote, reflects optimism that rising wages will keep inflation steady around the 2% target.

Experts believe the increase is part of a broader plan to gradually push rates closer to 1%, a level that’s seen as a sweet spot for Japan’s economy. “The chances of hitting the Bank of Japan’s goals are looking stronger,” one analyst noted, pointing to solid wage growth and stable financial markets.

The yen jumped slightly against the dollar following the announcement, while bond yields climbed to their highest since 2008. Investors are now watching closely for clues on how fast the bank might raise rates again.

In a quarterly report, the bank also revised its inflation outlook upward, predicting core inflation will stay above 2% for the next three years. Labor shortages and rising import costs are among the factors driving prices higher.

This hike comes amid global uncertainty, especially with U.S. trade policies under scrutiny. But for Japan, it’s a sign the economy is on firmer footing—and that more rate increases could be on the horizon in 2024.