Bank of Japan stands pat but seen keeping finger on trigger By Leika Kihara and Rie Ishiguro TOKYO (Reuters) - The Bank of Japan kept monetary policy steady as expected on Tuesday, holding off any new steps to help meet its new inflation target and boost activity ahead of a more thorough assessment of the economy later this month. The decision was widely expected by markets, although the dollar still slid against the yen after the announcement on selling by traders who had speculated that the central bank could surprise them as it did in February. The market view was BOJ policymakers would prefer to hold fire at least the next policy meeting on April 27, when revised long-term forecasts should show that a sustained end to deflation is a long way off, giving them justification to act. Traders are already factoring in a monetary easing in late April, as the government keeps up pressure for bolder steps to pull Japan out of deflation. "The question now is not whether the BOJ could ease on April 27, but what the bank would do in taking further easing steps," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. Inaction would upset politicians and disappoint markets, possibly sending the dollar below 80 yen. Japan's economy has shown some signs of recovery on reconstruction spending after last year's earthquake. But business sentiment failed to match that improvement, the BOJ's recent tankan survey showed, suggesting that any recovery will be modest. The BOJ maintained its assessment the economy is showing some signs of picking up but offered a cautious view on business sentiment, saying it was more or less flat. The BOJ surprised markets in February by increasing its asset buying and loan scheme by 10 trillion yen ($121 billion) and setting a 1 percent inflation target. It held fire last month, as the yen's retreat from record highs and growing signs Japan is headed for a recovery give it some breathing space. But renewed expectations of further stimulus by the Federal Reserve, driven by Friday's disappointing U.S. jobs data, have nudged the yen to a one-month high against the dollar, keeping pressure on the BOJ to act again soon. Many on the BOJ board are ready to pull the trigger on any signs that the recovery is under threat. While they stick to the view the economy is picking up, they remain worried about risks such as slowing Chinese growth and high oil prices. In a sign that political pressure has not subsided despite February's action, Economics Minister Motohisa Furukawa said on Tuesday he continued to expect the BOJ to take flexible, bold steps to achieve its 1 percent inflation target. Finance Minister Jun Azumi also voiced hope for an easing this month, saying that April was key in gauging the outlook for Japan's economy because money set aside under the state budget for reconstruction from last year's earthquake will begin to flow through the economy. In April we have to build a solid base from which the economy can expand this year. We also have G20 meetings, and I think the BOJ will look at this closely and respond appropriately as needed," he told a news conference on Tuesday. BOJ Governor Masaaki Shirakawa may face demands for more action when he attends, as an observer, a new government panel to discuss measures to overcome deflation, which will hold its first meeting by the end of this month. The BOJ, knowing political pressure will persist, wants to time its action wisely. It now expects core consumer inflation of 0.1 percent for the fiscal year that began in April and 0.5 percent for the following year, well below the 1 percent target. With few signs of domestic price pressures, the BOJ may find it hard to justify raising its inflation forecast on April 27 unless it is accompanied by another round of stimulus. When the BOJ next acts, it will probably again expand its 65 trillion yen asset buying and loan program, mostly by committing to purchase more government bonds. In doing so, it may need to extend the maturity of bonds it buys under the program to five years from the current two-year timeframe as two-year yields are already stuck at 0.1 percent. Azumi and Shirakawa are scheduled to attend the G20 finance leaders' meeting to be held in Washington next week. $1 = 82.3700 Japanese yen Additional reporting by Stanley White and Rie Ishiguro; Editing by Edmund Klamann and John Mair