TOKYO--The Bank of Japan kept monetary policy unchanged Friday as it assesses how its latest interest-rate increase is affecting the economy and price trends.

As widely expected, the central bank maintained its policy rate at 1.0% at the end of its two-day meeting. It raised the target to a three-decade high in June, citing the possibility that underlying inflation could exceed the its 2% target.

The vote was 8-1, with hawkish board member Hajime Takata proposing an increase to 1.25%.

While inflation risks persist, BOJ policymakers are closely watching the effects of the June increase, developments in the Middle East and subsequent moves in oil prices before taking further action.

A weak yen also remains a major upside risk to inflation in Japan. The currency surged against the dollar overnight on suspected government intervention, but analysts say such action merely buys time.

The quarterly outlook report released Friday showed that the BOJ policy board continues to expect underlying inflation to reach the bank's 2% target in the near future.

The board expects consumer inflation, excluding volatile fresh-food prices, to average 2.5% in the year ending March 2027, slightly below the 2.8% projected in its April report. It expects prices to rise 2.4% in the year ending March 2028 and 2.0% the following year.

In the report, the BOJ emphasized the importance of stabilizing underlying inflation around 2% to reduce the risk of overshooting its target.

The central bank expects Japan's economy to grow 0.6% in the current business year, compared with the 0.5% expansion forecast three months ago. It projects growth of 0.8% in each of the subsequent two fiscal years.