The Bank of Japan reaffirmed its inflation projections and raised interest rates to their highest levels since the global financial crisis of 2008 on Friday, demonstrating its belief that rising wages will maintain inflation at or above its 2 per cent target.

Days after the inauguration of U.S. President Donald Trump, who is expected to keep international policymakers on guard against possible fallout from threatened higher tariffs, the BOJ made its first rate hike since July of last year.

In addition to stating that there is room to raise borrowing costs even more before they reach levels considered neutral to the economy, BOJ Governor Kazuo Ueda stated that the central bank will continue to raise interest rates as wage and price increases spread.

However, he gave few hints about when and how quickly rates would rise in the future, stating that the decision would depend on how quickly trend inflation in Japan reaches the BOJ's target in a sustainable manner.

'We have no preconceived notions. He said at a press conference following the policy decision, 'We'll look at price and economic developments as well as risks when making a decision at each policy meeting.'

The BOJ increased its short-term policy rate from 0.25 per cent to 0.5 per cent at its two-day meeting that ended on Friday, the highest level Japan has seen in 17 years. Toyoaki Nakamura, a board member, dissented from the vote, which went 8-1.

Following the policy decision, the yen increased by as much as 0.8 per cent to 154.845 per dollar; however, the gains were tempered following Ueda's press conference. For a brief period, the two-year JGB yield increased to 0.725%, which was last observed in October 2008.

Prior to Ueda's remarks, markets were pricing in one more 25 basis point rate increase by the end of this year.