Gov. Toshihiko Fukui's comments helped lift the dollar to a 4 1/2-year high against the yen.

After the bank's two-day policy meeting, Fukui told reporters that the bank's action isn't directly linked to data to be released next month.

"As for the future rate hikes, we must watch more economic data to check whether the economy and prices move as we've expected," he said.

Although the Bank of Japan is in principle independent from the government, some analysts believe the bank may be under political pressure to not increase interest rates until after parliamentary elections scheduled for July. But once the election is over, the bank may take action, they said.

But Fukui's comments dampened that speculation.

The dollar rose to 123.38 yen in Tokyo, the highest since December 2002, and up from 123.12 yen late Thursday in New York.

The bank maintained its upbeat assessment of the economy in a monthly report, saying that production, exports and consumer spending are improving, keeping the economy on track for moderate expansion.

Figures released earlier this week showed that the economy grew at an annual pace of 3.3 percent for the January-March quarter, up from an earlier estimate of 2.4 percent. The nation's unemployment rate has also declined to 3.8 percent in April, the lowest level in nine years.

However, consumer prices have fallen the last three months, raising concerns that Japan might be slipping back into deflation. The core consumer price index edged down 0.1 percent in April, 0.3 percent in March and 0.1 percent in February which was the first drop in 10 months.