The Bank of Japan raised its benchmark interest rate to 1.25 percent on Friday, marking the highest level in 31 years and the sixth hike since ending its negative rate policy in March 2024.

The decision came at the end of a two-day policy meeting and lifted the uncollateralized overnight call rate target by 25 basis points from 1 percent. The board approved the move by a 7-2 vote, with members Toichiro Asada and Ayano Sato dissenting.

Policymakers cited growing upside risks to inflation driven by higher crude oil prices and a weaker yen. The bank noted that underlying inflation is approaching its 2 percent target and that it must act to prevent an overshoot that could harm the economy.

The new rate takes effect on September 24. This marks the shortest interval between hikes under Governor Kazuo Ueda, coming just three months after the previous increase in June.

Governor Ueda is scheduled to hold a news conference later Friday to discuss the decision and the outlook for further tightening. The move aligns the BOJ with other major central banks responding to persistent global inflation pressures.

Markets reacted with the yen initially weakening against the dollar following the announcement, as some investors viewed the divided vote and measured guidance as less aggressive than anticipated.