TOKYO: The Bank of Japan raised interest rates in a mostly unexpected move on Wednesday and unveiled a detailed plan to slow its massive bond buying, taking another step towards phasing out a decade of huge stimulus.

The decision, which defied dominant market expectations for the BOJ to stand pat on rates, takes its short-term policy rate to levels unseen since 2008.

At the two-day meeting ending on Wednesday, the BOJ’s board decided to raise the overnight call rate target to 0.25% from 0-0.1% in a 7-2 vote.

It also decided on a quantitative tightening (QT) plan that would roughly halve monthly bond buying to 3 trillion yen ($19.6 billion), from the current 6 trillion yen, as of January-March 2026.

Japan’s shift to tighter monetary policy contrasts sharply with the broad swing to lower interest rates by other major economies, with the Federal Reserve expected to signal later on Wednesday that it will cut rates in September as price pressures moderate.

BOJ Governor Kazuo Ueda said the bank could tighten policy again if conditions demanded it.

“If the economy and prices move in line with our projection, we will continue to raise interest rates,” Ueda said at a press briefing after the meeting.