Japan's central bank has raised its benchmark interest rate to "around 0.25%" from it previous range of 0% to 0.1% and outlined its plan to taper its bond buying program.

But the Bank of Japan said it expects real interest rates to remain "significantly negative," adding that "accommodative financial conditions will continue to firmly support economic activity."

The central bank forecasts that the core inflation rate which strips out prices of fresh food will reach 2.5% by the end of the 2024 fiscal year, and "around 2%" for the 2025 and 2026 fiscal years.

The BOJ said it will continue to raise the policy interest rate and adjust the degree of monetary accommodation, assuming its economic outlook is realized.

Japan's fiscal year runs from April 1 to March 31, which means the 2024 fiscal year will end on March 2025.

The Bank of Japan said that it will reduce the monthly outright purchases of Japanese government bonds to about 3 trillion yen per month in the January to March 2026 quarter.

The amount will be cut by around 400 billion yen per quarter, the BOJ added, which will bring the total JGB holdings down by about 7% to 8%. The BOJ's JGB holdings currently stand at a whopping 579 trillion yen as of July 19, according to CNBC's calculations.

Source : CNBC