The Bank of Japan has expanded stimulus by doubling purchases of exchange-traded funds (ETF), yielding to pressure from the government and financial markets for bolder action, but disappointing investors who had set their hearts on more audacious measures.
The central bank, however, said it will conduct a thorough assessment of the effects of negative interest rates and its massive asset-buying programme in September, suggesting that a major overhaul of its stimulus programme may be forthcoming.
BOJ Governor Haruhiko Kuroda said the bank was conducting the review not because its policy tools have been exhausted but to come up with better ways to achieve its 2% target - keeping alive expectations of further monetary easing.
"I don't think we've reached the limits both in terms of the possibility of more rate cuts and increased asset purchases," Mr Kuroda told reporters after the policy meeting.
"We will of course consider what to do in terms of monetary policy steps, based on the outcome of the assessment."
At the two-day rate review that ended overnight, the BOJ decided to increase ETF purchases so its total holdings increase at an annual pace of 6 trillion yen ($58 billion), up from the current 3.3 trillion yen.
The decision was made by a 7-2 vote.
But the BOJ maintained its base money target at 80 trillion yen, as well as keeping to the existing pace of purchasing other assets including Japanese government bonds.
It left unchanged the 0.1% interest it charges on a portion of excess reserves that financial institutions park with the central bank.
The dollar fell more than a full yen earlier at one point to as low as 102.825 and the Nikkei average tumbled nearly 2%, after the BOJ's decision fell short of expectations.
The benchmark 10-year JGB yield rose briefly to minus 0.170%, its highest since 24 June, as the BOJ held off on expanding bond purchases.
"The BOJ did not live up to expectations," said Norio Miyagawa, senior economist at Mizuho Securities.
"Increasing ETF purchases makes no contribution to achieving 2% inflation. The BOJ won't admit it, but it has reached the limits of quantitative easing and negative rates."
By coordinating its action with the government's promised $272 billion economic stimulus spending package, the BOJ likely aimed to maximise the effect of its measures on an economy that is struggling to escape decades of stagnation.
"Japan is conducting a powerful mix of flexible fiscal policy and quantitative easing," Mr Kuroda said.
"The government's stimulus package helps reinforce this drive and is timely in achieving sustainable growth with price stability."
