The Bank of Japan (BOJ) left monetary policy steady on Thursday, surprising several market players who were widely expecting a hefty dose of stimulus.

The central bank maintained its negative 0.1 percent deposit rate and its 80 trillion yen base money target. However, it did leave the door open to additional easing steps and said it will provide loans at zero interest rates to areas impacted by the recent Kyushu earthquakes.

The decision sent the dollar-yen currency pair tumbling more than 2 percent to the 109 handle.

Major banks, including Goldman Sachs and Bank of America Merrill Lynch, were widely expecting the BOJ to increase purchases of exchange-traded stock funds (ETFs) alongside interest rate cuts, a CNBC survey showed this week.

The review, which kicked off Wednesday, was billed by HSBC as "the most closely watched meeting in recent memory," against a backdrop of a stronger yen, year-to-date losses on the benchmark Nikkei 225 and the economic damage from the Kyushu quakes.

Inflation data, a key factor shaping the BOJ's policy outlook, released before Thursday's market open also underpinned easing expectations. March consumer price inflation (CPI) slid 0.3 percent on-year, the first decline since May 2013 while core inflation-an indicator excluding fresh food—declined for the fourth straight month.

"They are likely to take this opportunity to evaluate the impact of negative interest rates on the economy, while remaining mindful of the Upper House election in early summer," Maybank analysts said in a note, explaining the bank's decision to stand pat.

July's upper house election is seen as pivotal for the ruling Liberal Democratic Party, according to political pundits. A victory would embolden Prime Minister Shinzo Abe to amend the constitution and shed light on whether he will delay the second stage of the consumption tax hike, which is scheduled for 2017.

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First Published:Apr 28, 2016 9:09 AM IST