The Bank of Japan has raised short-term interest rates by a quarter point, the highest in 17 years, signalling efforts to normalise monetary policy in response to persistent inflation and increasing wages.

Japan's central bank has increased the cost of borrowing to its highest level in 17 years, after consumer price rises accelerated last year. 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 Bank of Japan raised its key interest rate to about 0.5% from 0.25% Friday, noting that inflation is holding at a desirable target level.