Tokyo, Sept. 18 -- The Bank of Japan (BOJ) raised its key interest rate by 25 basis points to 1.25 per cent from 1.0 per cent earlier, while warning that underlying inflation could exceed its 2 per cent target amid rising wage and price expectations.

At its latest Monetary Policy Meeting, the BOJ's Policy Board approved the rate increase by a 7-2 majority.

"At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a 7-2 majority vote....The Bank will encourage the uncollateralized overnight call rate to remain at around 1.25 percent," the Japanese central bank said in a release.

The BOJ also flagged risks from developments in the Middle East, rising AI-related demand and movements in foreign exchange ...