The Bank of Japan lifted its key short-term rate by 25bps to 1.25% in a 7-2 vote at its September meeting, marking the highest level since April 1995 and in line with market expectations. The hike, the first in three months, reflected persistent inflationary pressures, including those stemming from higher oil prices, and marked another step away from decades of ultra-low rates. Board members Asada Toichiro and Sato Ayano dissented. Policymakers said they would continue to raise the policy rate and adjust monetary accommodation in response to developments in economic activity, prices and financial conditions, while considering the timing and pace of further adjustments. Core CPI inflation has been rising moderately as higher business-to-business prices spill over into consumer prices and firms pass higher wages on to selling prices. Upside risks to inflation exceeding the 2% target remain, while the board said it would closely monitor the economic impact of the Middle East conflict.