Bank of Japan Deputy Governor Ryozo Himino stated on Wednesday that Japan's underlying inflation is now quite close to the central bank's 2% target, and financial conditions remain accommodative. This signals that the BOJ is prepared to raise borrowing costs.

Speaking before Japan's parliament, Himino said that beyond rising fuel and raw material costs pushing up prices, strong global demand for artificial intelligence (AI) is also exerting upward pressure on prices by driving exports and capital expenditure.

"Given that medium- to long-term inflation expectations continue to rise, underlying inflation is already very close to 2% and is expected to move toward a level consistent with our price target," Himino said.

He noted that despite last month's rate hike, financial conditions remain accommodative—reflected in real borrowing costs still being low and bank credit growth remaining strong.

"Given that inflation risks remain elevated, delaying necessary adjustments to monetary support could cause these risks to materialize and harm the economy in the long run," Himino said.