You asked several questions about crankshaft welding, undercutting the transmission and boring the upper case.
Anytime you install larger than stock sleeves (which is required for an 1197cc motor) you will have to bore the upper case.
The most efficient way to do this is to bore the upper case as a unit with the cylinder when it is bored for the oversized sleeves.
This will keep everything lined up correctly.
Once the boring is complete, the upper case will require one more pass on the boring bar to give you the proper clearance on the bottom of the sleeves, since the block is bored as an interference fit with the sleeves.
An 1197cc engine has a piston bore of 2.992".
So, the smallest sleeves that you can use are 3.200" diameter, giving you a little more than .100" wall thickness.
This can be used on the street, but you must always keep in mind that it is an air cooled motor and as such you must keep the air moving around it.
As long as you are moving at 20 MPH, it should be okay.
If you get stuck in traffic, you should shut it off, stop at the nearest bar and have a beer until the traffic clears.
You are running a J-model head on your motor.
The J-model head has a larger combustion chamber than the early style head (which you know).
The J-model pistons have a different compression height than the early style motors (which you know).
So, you have two choices available to you.
You can run high compression (12.5:1) early style pistons which will be decreased in compression due to the J-model head, or you can run J-model 10.5:1 compression pistons and make up the compression height difference by using the aforementioned .040" spacer plate.
You currently have installed, the best camshaft ever ground for the air cooled four cylinder Kawasaki motor.
The PSP-3X camshaft is the same as the old Andrews 3X.
It has .418" lift and 282 degrees of duration at .030" lift.
This is very long duration for a street camshaft.
As such, you must keep the compression up.
As far as the question of welding the crankshaft and undercutting the transmission are concerned, it is just the smart move since you already are committed to splitting the cases.
There are three things that I would always do when I split the cases and they are, weld the crank, undercut the transmission and put in a new heavy duty cam chain.
Hope this helps.
