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STORY: The Bank of Japan surprised markets on Wednesday with a rate hike.

Following a policy meeting, the BOJ board raised the overnight call rate to 0.25% - up from 0-0.1% previously.

The move was largely unexpected, and took the rate to its highest since 2008.

Speaking at a news conference, bank governor Kazuo Ueda said the time was ripe for a move:

"In the meeting today, we have judged that it would be appropriate to adjust the degree of easing from the perspective of sustainable stable achievement of 2 percent inflation."

The BOJ boss also set out plans to reduce the bank’s massive programme of bond buying, which had been intended to support the economy.

It all marks a swing to tighter monetary policy - in contrast to the move to reduce rates elsewhere in the world.

In the U.S., the Federal Reserve is widely expected to do a cut in September, as inflation pressures there ease.

Japan’s battered yen currency saw volatile trade following Wednesday’s news.

It rose as much as 0.8% versus the dollar, passing three-month highs, before giving up the gains.

The Nikkei stock index rallied, with banks among the top performers.

They’re expected to benefit as higher interest rates boost margins on lending and lift investment income.

Shares in megabank Mizuho rose around 5% in afternoon trade.