TOKYO (Kyodo) -- The Bank of Japan on Friday raised its policy interest rate to 0.5 percent from 0.25 percent, its highest level in about 17 years, amid expectations for wage hikes in this year's annual labor-management negotiations.

The BOJ said it will continue to raise the key short-term rate if the economy and prices move in line with its expectations.

The bank also lifted its projections for the core consumer price index, excluding volatile fresh food, for the three years through fiscal 2026 in its latest outlook released the same day, citing a recent surge in rice prices and a weaker yen pushing up prices of imports.

The bank now estimates that the index will grow 2.7 percent in fiscal 2024, 2.4 percent in fiscal 2025 and 2.0 percent in fiscal 2026, compared with the previous forecasts of 2.5 percent, and 1.9 percent, and 1.9 percent, respectively.

The rate hike was decided in an 8 to 1 vote at the bank's Policy Board. The sole opponent, Toyoaki Nakamura, said the BOJ should confirm a rise in corporate earnings momentum before lifting rates.

The bank's first rate hike since July came as its Policy Board grew more confident about another round of sharp pay hikes in this year's "shunto" wage talks.

Its branch managers' meeting earlier this month noted that companies in a wide range of industries intend to offer pay hikes, while many business leaders at large corporations have promised bumper wage increases since the beginning of the year.

The bank's board members were also encouraged by financial markets remaining relatively stable after the inauguration of U.S. President Donald Trump on Monday, sources familiar with the matter said.

Trump's promises unveiled in his inauguration speech, including his tariff plan, fell largely within market expectations, laying the groundwork for the BOJ to go ahead with further monetary tightening, they said.

The key short-term rate was last at 0.5 percent in October 2008, as the global economy was beginning to be jolted by a financial crisis.

According to government data released earlier Friday, Japan's core consumer prices in December rose 3.0 percent from a year earlier, the fastest pace in more than a year, as government subsidies for utility bills ended.

The inflation rate has remained at or above the BOJ's 2 percent target since April 2022.

In its effort to normalize policy after a decade of ultra monetary easing, the BOJ ended its negative rates measure in March last year in its first rate increase in 17 years. The bank also raised rates to 0.25 percent from the range of zero to 0.1 percent in July.

In the runup to the latest policy meeting, Governor Kazuo Ueda and one of the BOJ's two deputy chiefs, Ryozo Himino, signaled an additional hike was imminent, stressing that the bank would debate whether to raise rates at its meeting in unusually detailed remarks ahead of a policy meeting.