Investors poured funds into Japan equities last year on the expectation of further easing measures from the central bank, but it looks like the Bank of Japan (BOJ) will disappoint again at its meeting next week.
"We are in for a disappointment," Alain Bokobza, head of global asset allocation at Societe Generale, told CNBC. "We were expecting some kind of further monetary policy loosening on top of what was announced some quarters ago and we're still waiting."
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In April of 2013, the BOJ launched a massive quantitative easing program in the "first arrow" of Abenomics, a series of policy measures unveiled under Prime Minister Shinzo Abe aimed at kickstarting Japan's long-moribund economy. Investors pushed the Nikkei up more than 50 percent, partly on hopes that the central bank would deliver. So far, they have come away disappointed
Analysts say the central bank will likely let markets down again when it wraps up its policy on July 15. A Bloomberg survey of 34 economists was unanimous in its view that monetary policy would remain unchanged, with 38 percent now predicting additional easing this year, down from 58 percent in the survey last month.
"There is somewhat of a policy mistake," Bokobza said, noting that the consumption tax increase to 8 percent from 5 percent in April represented a tighter fiscal policy. "If you tighten the fiscal policy, normally to be neutral, you should loosen the monetary policy further. And we are still waiting for it and we think we are going to be disappointed for some time."
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Bokobza doesn't expect further BOJ easing until next year, which will likely keep both stocks and the yen stuck in a rut.
"The big bet we have seen last year on Japan equities is temporarily put on hold," he said.
In addition to damping enthusiasm for the stock market, which has swooned more than 6 percent so far this year, the delay in providing further stimulus may be weighing on efforts to revive the economy.
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Machinery orders data for May, released Thursday, show core orders fell 19.5 percent from April, the worst monthly drop on record, disappointing expectations for an increase and flying in the face of hopes for a capital spending pickup to help drive economic growth.
Bokobza isn't alone in pushing back expectations for further easing.
Consensus now expects an announcement of more easing at the BOJ's late October meeting, but a case could be made for it to happen even later and the size of any additional easing measures could also disappoint, said Marcel Thieliant, an economist at Capital Economics, in a note Tuesday.
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Based on the data which will be available at the time of the October meeting, the BOJ is likely to believe it's on the right course to boost inflation to its 2 percent target within the next two fiscal years. Capital Economics doesn't expect inflation to falter until the end of the year.
"Our existing forecast that the BOJ will accelerate the pace of purchases from the current 60-70 trillion yen to 90 trillion yen per annum later this year is probably too aggressive," he said, adding he expects it's likely to simply be extended at the current pace for another year.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1