The Bank of Japan raised its overnight call rate by 25 basis points from 1.0% to 1.25%, its second increase this year and the highest level in decades, as inflation moved closer to its 2% target. The decision matched expectations but passed 7-2, with Toichiro Asada and Ayano Sato opposing it, tempering expectations for rapid further tightening even as Governor Kazuo Ueda said additional increases could follow if needed to prevent underlying inflation from exceeding 2%. The yen initially weakened sharply, with dollar-yen reaching 158.05 during European trading, its highest level since September 3, before reversing in New York on concern that further depreciation could prompt intervention by Tokyo or the BOJ. The pair stood at 157.45 at midnight, while Tokyo market data recorded 157.48-50 per dollar at 5 p.m. Softer-than-expected August inflation, cautious BOJ guidance and the persistent Japan-U.S. interest-rate differential reduced the yen's initial support from the hike. Capital Economics' Marcel Thieliant said the policy rate was unlikely to rise above 2% because that level would probably become restrictive, but projected the BOJ could reach 2% as soon as mid-2027, ahead of current market pricing. He said Japan's planned April sales tax cut could lower inflation to very low levels, creating downside risk to the eventual peak.