Bank of Japan raises rates to highest in 17 years

Japan’s central bank has raised the cost of borrowing to its highest level in 17 years, as it tries to cap rising prices.

The move by the Bank of Japan (BOJ) to raise its short-term policy rate to 0.5% comes just hours after the latest economic data showed prices rose last month at the fastest pace in 16 months.

The BOJ’s last interest rate hike in July, along with a weak jobs report from the US, caught investors around the world by surprise, which triggered a stock market selloff.

The bank’s governor, Kazuo Ueda, signalled this latest rate hike in advance in a bid to avoid another market shock.

According to official figures, core consumer prices in Japan increased by 3% in December.

The decision marks the BOJ’s first rate hike since July and came just days after Donald Trump returned to the White House.

During the election campaign Trump threatened to impose tariffs on all imports into the US, which could have an impact on exporting countries like Japan.

By raising rates now the bank is not only trying to keep on top of inflation but will also have more scope to cut rates in the future if it needs to boost the economy.

The move also highlights the central bank’s plans to steadily increase rates to around 1% – a level economists see as neither boosting or slowing the economy.

Last year, the BOJ raised the cost of borrowing for the first time since 2007.

That hike meant that there are no longer any countries left with negative interest rates.

When negative rates are in force people have to pay to deposit money in a bank. They have been used by several countries as a way of encouraging people to spend their money rather than putting it in a bank.