After nearly eight hours of deliberations, the BoJ also said coordinated foreign exchange intervention to restrain the yen's rise looked difficult.

The Japanese unit was trading at around 104.80 against the dollar by 1000 GMT and dealers said the US unit was poised to test last week's 3-1/2 year low at 103.17.

The yen has soared 14 per cent against the dollar since early July, pushed up by foreign money flowing into Japan looking for the country's long-awaited economic recovery.

"It's the worst possible outcome for dollar/yen," said Steward Newnham, senior strategist at State Street in London.

"Not only is the BoJ leaving their policy on sterilised intervention unchanged, but they are also making no effort to show a change in monetary policy. Effectively, itseems there is no credible official support for dollar/yen."

Markets had speculated that the BoJ would signal an easing of monetary policy as a prerequisite for Japan to persuade the US and other G-7 partners, due to meet on Saturday, to join their effort to curb the economically-damaging yen rise.

Share markets in Europe which were mixed to firmer at the start of trade, retreated following the BoJ news as the Japanese decision was seen as increasing the possibility of a U.S. Rate hike following the Federal Reserve's regular monetary meeting next month.

Talk of possible higher rates in the 11-nation euro zonealso surfaced following upbeat economic data out of Germany.