TOKYO (Reuters) – The Bank of Japan (BoJ) raised interest rates on Wednesday and said it expected inflation to remain around its 2 percent target in the coming years, signaling its determination to gradually wind down a decade of massive monetary stimulus.

At its two-day meeting that ended Wednesday, Japan’s central bank also laid out a detailed plan to reduce monthly bond purchases in stages to about 3 trillion yen ($19.6 billion) from January-March 2026.

The BoJ decided, by a vote of 7 to 2, to raise its short-term rate target from 0-0.1% to 0.25%.

In financial markets, yields on short-term Japanese government bonds hit their highest level in 15 years, while Japanese bank stocks were in demand.

The two-year JGB yield jumped 8 basis points (bps) to 0.45%, its highest level since April 2009. The five-year JGB yield gained 8 bps to 0.665%, its highest since November 2009.

The Tokyo Stock Exchange’s banking index ended with a gain of 4.72%, allowing the Nikkei to close up 1.49% at 39,101.82 points.

At the exchange rate, the yen climbed to 152.12 per dollar from a 38-year low hit earlier this month at 161.96.

“Given that today’s decision comes only four months after the first (rate) hike, the market must think the BoJ is perhaps a bit more hawkish than it thought,” said Naka Matsuzawa, chief macro strategist at Nomura.

“The faster-than-expected rate hike demonstrates that the BoJ wants to push up short-term yields,” he added.

Speaking after the BoJ statement, Japanese central bank Governor Kazuo Ueda said the bank would continue to raise rates and adjust the degree of policy based on economic conditions and price prospects.

Kazuo Ueda also considered it appropriate to adjust the degree of monetary policy with a view to achieving a sustainable and stable inflation of 2%.

(Leika Kihara, Makiko Yamazaki, Mariko Katsumura, Kantaro Komiya, Satoshi Sugiyama, David Dolan, Kaori Kaneko and Sakura Murakami; with the contribution of Kevin Buckland; Camille Raynaud and Claude Chendjou)

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