The central bank shifted its borrowing cost target higher on Friday to address rising domestic prices. The Bank of Japan raised the short-term interest rate by 25 basis points to 1.25%, a level not seen in 31 years, and stated it remains ready to push costs further. This policy shift follows persistent inflation pressures caused by soaring oil costs and a weakening currency.

Underlying inflation could potentially exceed the central bank's 2% objective as import costs rise and businesses pass wage increases to consumers. The yen declined after the rate decision, raising the likelihood of government intervention if the USD/JPY pair moves toward 160 following a hawkish shift from the US Federal Reserve.