Japan's central bank has raised its key interest rate to about 0.5% from 0.25%, noting that inflation is holding at a desirable target level.

The Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis, underscoring its confidence that rising wages will keep inflation stable around its 2% target.

The Bank of Japan raised its key policy rate to the highest level since 2008 and took a more bullish view on the strength of inflation.

In a widely anticipated move, the Bank of Japan on Jan. 24 raised its short-term policy rate to 0.50% from 0.25%. Read more here.

The Bank of Japan holds its first policy meeting of the year next week and the outcome will be announced days after the inauguration of U.S. President-elect Donald Trump.

In a well-trailed move, the Bank of Japan on Friday raised the policy rate by 0.25 percentage points, taking it to 0.5 per cent — its highest level in nearly two decades.

Japan's central bank has increased the cost of borrowing to its highest level in 17 years after consumer price rises accelerated in December. The move by the Bank of Japan (BOJ) to raise its short-term policy rate to "around 0.5 per cent" comes just hours after the latest economic data showed prices rose last month at the fastest pace in 16 months.