BOJ Hike Sparks Yen Weakness and Nikkei Rally

The Bank of Japan (BOJ) increased its overnight call rate by 25 basis points to 1.25% in a split decision, with two board members dissenting from the move.

The hike was widely anticipated, but the dissenting votes gave it a dovish tinge, leading to yen weakness and a Nikkei rally.

Inflation risks remain tilted to the upside, with underlying CPI inflation approaching 2% and wage increases being passed through to selling prices.

The BOJ's outlook for the economy remains unchanged from its July assessment, but it notes that there is a risk of medium- to long-term inflation deviating upwards above the 2% price stability target.