TOKYO, Jan 18 The yen slipped to a 13-month low against the dollar on Thursday as the Ban

TOKYO, Jan 18 (Reuters) The yen slipped to a 13-month low against the dollar on Thursday as the Bank of Japan kept interest rates steady as expected, hobbling the already low-yielding Japanese currency.

The BOJ held rates at 0.25 percent in a 6-3 vote without issuing any statement, confirming a big shift in expectations in the past two days as a flurry of reports doused widespread views that a rate rise to 0.5 percent was coming this week.

Even if the BOJ had raised rates, many analysts believed a move would provide little relief to the yen because short-term Japanese interest rates remain so much lower than those of other currencies and the BOJ has pledged to lift rates only gradually.

Japan's extremely low rates -- compared with 5.25 percent in the United States and United Kingdom -- have prompted many market players to borrow the yen and use the funds to buy higher-yielding currencies in the carry trade.

''In the longer term, the story is the same. There are very large interest-rate differentials, and this will facilitate carry trades with the yen,'' said Tohru Sasaki, chief foreign exchange strategist at JPMorgan Chase in Tokyo.

Sterling vaulted to an eight-year high against the yen and the Australian dollar hit a nine-year peak after the decision, which had raised questions about whether the BOJ had bowed to government pressure against a shift.

The dollar climbed as high as 120.90 yen, the strongest since December 2005, before slipping back to 120.80 yen up just slightly on the day.

Traders had said the dollar was likely to rise to 121 yen if the BOJ kept interest rates unchanged.

The euro gained 0.4 percent to 156.70 yen while sterling jumped as high as 238.55 yen -- the highest since August 1998.

The euro edged higher to $1.2970 from around $1.2940 in late New York.

The media reports this week caught off guard investors who had thought a rate rise to a decade-high 0.5 percent from the current 0.25 percent was a done deal, despite signs of political pressure.

Market players are now looking to the BOJ's monthly report at 0600 GMT and then the regular post-meeting press conference by BOJ Governor Toshihiko Fukui starting at 0630 GMT for clues on whether rates could rise at the next meeting in February.

The split vote at the meeting stoked some speculation that BOJ board members are pushing to raise rates and that a move next month is more likely. The vote to keep rates steady in December was unanimous.

''It looks to have been a much closer call at the December meeting,'' said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. ''That may stem the pace of yen losses from here, but we are still bearish yen on relative rates.'' REUTERS CS GC1143