The Bank of Japan kept its main interest rate unchanged on Thursday, as widely expected, warning of "high uncertainties surrounding Japan's economic activity and prices."

The decision comes amid market uncertainty ahead of U.S. presidential elections on November 5 and following Japanese polls on Sunday that was the worst outcome for the ruling party since 2009.

The BOJ, which hiked interest rates in March for the first time in 17 years, said on Thursday it will maintain the key lending cost at 0.25 percent.

In an outlook report, the bank said there "high uncertainties surrounding Japan's economic activities and prices".

"Japan's economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions," it said.

The BOJ said it expected inflation of 2.5 percent for the current fiscal year to March 2025 before moderating to 2.0 percent in the following two years.

The Japanese vote on Sunday saw the ruling coalition of Prime Minister Shigeru Ishiba lose its majority in the lower house for the first time since 2009.

This will likely force Ishiba into a minority government that would need support from other parties to pass legislation.

Businesses and economists worry that as concessions to other parties, Ishiba, 67, will offer tax cuts and higher spending, and go slow on reforms needed to improve Japan's competitiveness.

The BOJ was for a long time an outlier among major central banks, sticking to an ultra-loose monetary policy in an attempt to see demand-driven inflation of two percent fueled by wage increases.

The BOJ raised borrowing costs in March for the first time since 2007 and again in July, signaling that more were on the cards.

Before being appointed leader of the Liberal Democratic Party, Ishiba openly backed this continuing.

But after the yen surged and stocks tumbled following his appointment he rowed back.

Many in the opposition though want a pause in order to avoid higher interest rates for consumers and businesses, even if this means a weaker yen and with it higher import prices.

Higher interest rates will also make servicing Japan's colossal debt pile -- which accounts for around 250 percent of gross domestic product (GDP) -- more expensive.

The U.S. Federal Reserve kicked off its rate-cutting cycle in September with a large cut of half a percentage-point, noting the progress made in bringing inflation down toward its long-run target of two percent.

But the data published in the three weeks since the rate decision was announced have been "uneven," Fed Governor Christopher Waller said in mid-October.