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The Bank of Japan voted 8-1 earlier today to raise its target for short-term interest rates to 0.5%, from 0.25%. This is the first change in monetary policy since it hiked to 0.25% last July, after five years of supporting its zero interest rate policy. The BoJ noted improvements in two key areas: consumer spending, which it claims had suffered from seasonal weakness, and less concern about the strength of important overseas economies. Global-Central-Bank-Rates-02-21-07 The Nikkei 225 initially traded lower on the news, but rallied back, while the broader TOPIX added 0.25% to close at a 15 year high. Traders sold the yen following the BoJ's decision and officials' comments -- it is now just under ¥121/$1. BoJ Governor Toshihiko Fukui said forex was not behind today's rate hike, although he recognizes the carry trade could hurt the economy. The BoJ's benchmark rate of 0.5% is 4.75% lower than the Federal Reserve's 5.25%, still a sizable gap which will likely keep downward pressure on the yen.

Sources: Bank of Japan decision [.pdf], Bloomberg, MarketWatch
Commentary: Bank of Japan's Policies are the Problem, Not the SolutionWill the Yen Bears Be Surprised?The Yen Gains Strength -- What Should We Expect?
Stocks/ETFs to watch: Mitsubishi UFJ Fin. Grp. (NYSE:MTU), Mizuho Fin. Grp. (NYSE:MFG). ETFs: iShares MSCI Japan Index (NYSEARCA:EWJ), iShares S&P/TOPIX 150 (NYSEARCA:ITF), BLDRS Asia 50 ADR Index (NASDAQ:ADRA), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)

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Source: BoJ Hikes to 0.5%; To Maintain 'Gradualist' Strategy, Yen Falls