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[Bank of Japan Raises Rates to 1.25% as Expected, Warns of Overshooting Inflation Risk; Yen Under Short-Term Pressure by Nearly 80 Points] 1. The Bank of Japan announced on Friday, after concluding its two-day monetary policy meeting, that it would raise its short-term policy rate by 25 basis points, from 1.00% to 1.25%, in line with market expectations. The decision was passed with 7 votes in favor and 2 against, with policymakers Asada and Sato voting against. 2. The statement noted that underlying inflation is gradually approaching the 2% target, and current financial conditions remain loose. The central bank stated that it will continue to raise interest rates based on developments in the economy, prices, and financial conditions, while considering the timing and pace of rate hikes based on an assessment of the likelihood and risks of achieving the baseline scenario. 3. The central bank emphasized that it needs to closely monitor the impact of the Middle East situation, artificial intelligence-related demand, and foreign exchange trends on the Japanese economy and prices when formulating policy. The statement believes that the Japanese economy is recovering moderately, inflation expectations are rising moderately, and underlying inflation may gradually reach a level consistent with the 2% target from the second half of fiscal year 2026 to fiscal year 2027, but it must be prevented from exceeding 2%. 4. The statement also mentioned that wholesale inflation remains high due to demand for oil, foreign exchange, and AI. Price pressures in inter-firm transactions are gradually being transmitted to consumer prices, with companies continuing to pass on rising wage costs to selling prices. The recent consumer price index (CPI) has been between 1.5% and 2.0%, and the depreciation of the yen may further push up prices, posing a risk of overshooting potential inflation. 5. The Bank of Japan judges that, from the perspective of achieving its price target sustainably and stably, it is necessary to adjust the level of monetary support. It also emphasized that after the adjustment of the policy interest rate, the loose financial environment will continue to support economic activity. 6. In terms of market reaction, the yen experienced some selling pressure after the interest rate hike decision was announced. The USD/JPY pair briefly rose nearly 80 points to 156.94, a near two-week high, with an increase of approximately 0.64%.