The Bank of Japan kept monetary policy steady as widely expected on Tuesday, holding off on easing as it scrutinizes how escalating debt woes in Europe and a U.S.-driven rise in bond yields affect Japan's fragile economy.

In a statement announcing the rate decision, the central bank said it will steadily purchase various assets and provide longer-term funds through its 35 trillion yen ($418 billion) asset buying and market operation fund, to ensure that the effects of its monetary easing steps spread across the economy.

The BOJ left its assessment of the economy unchanged, saying it is showing signs of moderate recovery, but revised down its view on output, saying it has recently declined slightly.

The BOJ kept interest rates unchanged at a range of zero to 0.1 percent by a unanimous vote.

Governor Masaaki Shirakawa will hold a news conference with his comments to come out sometime after 4:15 p.m. (0715 GMT).

Markets will be on the lookout for what he has to say about recent rises in Japanese bond yields, which if they persist could hurt the economy by pushing up corporate borrowing costs.

The BOJ eased monetary policy in October by pledging to keep interest rates effectively at zero until the end of deflation was in sight and by crafting a pool of funds to buy assets ranging from government bonds to corporate debt.

BOJ policymakers have repeatedly said that increasing the size of the fund would be a clear option if the looming economic slowdown proves worse than expected.

But with the yen well off its 15-year high against the dollar hit last month, the BOJ hopes to spend more time analyzing the impact of its measures on the economy and financial markets.

(Reporting by Leika Kihara, Rie Ishiguro; Editing by Edmund Klamann)

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