The yen is within reach of a 15-year high against the dollar but the pace of its rise has been gradual and calls for BOJ action from businesses and politicians have been subdued.

The decision to leave policy unchanged came as little surprise to markets, which had expected the BOJ to stand pat unless the yen soars at a pace of 2 to 3 yen per day and heads for a record high beyond 80 yen.

BOJ Gov. Masaaki Shirakawa said the board spent much time debating the impact of yen gains on the economy as they could potentially hurt business sentiment.

But he repeated comments made at the last policy review in July that risks to the economy were evenly balanced and yen moves alone would not trigger a policy response.

"Currency moves are among factors that affect the economy. But they don't immediately determine monetary policy," Shirakawa told a news conference.

Japan's finance minister cautioned that excessive currency moves were not good for the economy but he did not escalate the level of his recent warnings, while the economics minister said the yen's rise may not continue for a long time.

Policymakers in Tokyo fear that a strong yen could derail the feeble recovery from the global crisis. Similarly, pressures are mounting on US officials as data points to faltering growth in the world's biggest economy.

The policy-setting Federal Open Market Committee (FOMC) of the US Federal Reserve meets later on Tuesday.

"It seems they (BOJ) still want to wait and see before taking any action, in particular they want to see the outcome of the FOMC meeting," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"They seem to be a little more optimistic about the economy than the market consensus."

The Fed may send a clear signal it is prepared to print more money to support a faltering economic recovery. The decision is expected around 1815 GMT.

While any steps by the Fed might initially be symbolic, they will still be more aggressive than the minor steps preferred by the BOJ and so may drive down the dollar/yen rate, analysts say.

The dollar is within reach of its 15 year low against the yen after Friday's weak US payrolls data heightened expectations the Fed will contemplate further steps to support the economy. It was holding near 85.75 yen on Tuesday.

The BOJ kept interest rates at 0.1 percent in a unanimous vote. It also kept its economic assessment unchanged and said that the central bank needed to watch how recent market moves could affect Japanese and global economies.

The government maintained its view the economy is steadily picking up, but a government official warned recent yen gains have been sudden and are undesirable for growth.

Big Japanese export firms are not panicking about the yen rise yet, as many have become more resilient to currency fluctuations as they shift production overseas.

"For cars built in Japan, the business is not viable at a dollar of 85 yen," said Yoichi Hojo, chief financial officer at Honda Motor Co.

"But globally, there are regions that will make up for the loss so we can make a profit (this year even at 85 yen).

The pain, however, may intensify if the yen stays around 85 to the dollar for a prolonged period, higher than the 90.18 yen forecast by big manufacturers in the BOJ's June tankan survey, analysts say.

Finance Minister Yoshihiko Noda declined to comment on currency intervention but said he was watching markets with utmost caution.

The Democratic Party-led government has not piled much pressure on the BOJ for now as the ruling party, weak after losing its parliamentary majority in upper house elections in July, is preoccupied with seeking ways to gain support from other parties in passing legislation.

But that may change in the autumn, when parliament convenes for full-fledged debate on the state budget and the Democrats decide whether to give incumbent Naoto Kan another term in a party leadership vote in September, some analysts say.

Even if it does act, the BOJ will probably settle for a minor tweak of policy, rather than a radical change such as a return to full-blown quantitative easing. The effect on the yen and the economy would therefore be limited, analysts say.

Analysts say a yen rise and government pressure were largely behind the BOJ's decision to ease policy in December last year by setting up a facility offering cheap funds to banks.