BOJ Hikes Key Rate to 1.25%, Warns of Potential Inflation Exceeding Target

The Bank of Japan (BOJ) raised its key interest rate to 1.25% from 1.0%, marking the highest level since 1995, as it warned that underlying inflation could exceed its 2% target amid rising wage and price expectations.

At a recent Monetary Policy Meeting, the BOJ's Policy Board approved the rate increase by a 7-2 majority vote. The central bank stated that it will encourage the uncollateralized overnight call rate to remain at around 1.25 percent.

The BOJ also flagged risks from developments in the Middle East, rising AI-related demand, and movements in foreign exchange rates, which could affect Japan's economic activity and prices.