The Bank of Japan's (BOJ) foray into negative interest rates hasn't yielded positive results, and the central bank's arsenal is getting thin.
That's spurring analysts to speculate the BOJ's next attempt at easing may target scooping up more assets in the stock market.
"They tried negative rates. It didn't work," Mark Matthews, head of research for Asia at private bank Julius Baer, told CNBC Wednesday. "I think what they will do … is they will announce more quantitative easing, probably through equities."
Analysts have said they expect the BOJ to ease policy further as economic growth forecasts remain anemic and inflation is still well below the central bank's target of 2 percent.
The rise in the yen has also fanned concerns over the impact on exports. Finance Minister Taro Aso said Friday the government would take steps as needed to arrest the yen's ascent.
The next policy meeting outcome will be announced April 28.
In addition to purchasing Japan government bonds (JGBs), the BOJ's massive 80 trillion yen ($712.16 billion) worth of quantitative easing annually already targets Japan real-estate investment trusts (J-REITs) and exchange-traded funds as well as corporate bonds.
But purchases of JGBs may be losing their punch, with the BOJ now owning more than a third of the country's outstanding government bonds.
"[Quantitative easing] is at the end of its limits. All you're doing is building up excess reserves in the banking system," Marvin Barth, global head of foreign-exchange strategy at Barclays, told CNBC's Street Signs Tuesday.
That may have been one driver of the BOJ's decision to introduce negative interest rates in late January. But that move didn't appear to have had the desired impact on markets, with the yen strengthening, rather than weakening.
Additionally, last week, the BOJ's Tankan survey of big manufacturers showed confidence worsened more than expected in the first quarter, with the decline in part due to the negative-rate policy.
Cutting interest rates further into negative territory may be difficult for the BOJ.
From a political perspective, "negative rates are not going to be popular in a country where 54 percent of household assets are in demand deposits," noted Barth.
That may leave the BOJ with buying assets in the stock market. Marcel Thieliant, an economist at Capital Economics, said via email he expects the BOJ will increase its ETF purchases by 5 trillion yen, with an additional "token" increase in J-REIT purchases. That would be on top of a 5 trillion yen increase in JGB purchases, likely at the upcoming meeting, he said.
One thing analysts don't expect the BOJ to buy: foreign bonds. That's because it would break the country's commitments to avoid currency manipulation.
Indeed, in a Wall Street Journal interview published Wednesday, Prime Minister Shinzo Abe said "we must definitely avoid competitive devaluation, and I think we should refrain from arbitrary intervention in currency markets."
Julius Baer's Matthews said those comments were "like blood on the water for the sharks," as it signaled Japan likely wouldn't intervene to stem the rising yen anytime soon. The yen has strengthened to its highest level against the dollar since October 2014, with the dollar fetching 109.47 yen Thursday morning, down from levels over 120 yen touched in January.
That's a negative for corporate Japan, noted Kathy Lien, managing director of foreign-exchange strategy at BK Asset Management, in a note Wednesday.
"Most Japanese corporations are hedged at 115 so they are bleeding profits at 110 and lower," she said.
That's ominous for hopes that Japanese companies will increase wages and investment to spur economic growth.
To be sure, the BOJ's policies haven't been completely unsuccessful.
While the country hasn't managed to hit its 2 percent inflation target, Barclays' Barth noted that Japan has seen the best inflation performance among G10 countries for the last three years, citing data showing core inflation has gone from negative 0.5 percent to positive 1 percent.
Additionally, Societe Generale has pointed to some positives from last week's Tankan report.
While the headline figure disappointed, Societe Generale noted the lending attitude diffusion index for small and medium enterprises improved substantially to positive-20 from positive-17 in the fourth quarter, before the BOJ adopted negative interest rates at the end of January.
Societe Generale considers that a good forecasting tool for domestic demand, particularly as it helps to support sectors including construction and real estate.
Indeed, while the rise in the yen followed the BOJ's move to a negative interest rate policy, there are reasons to believe that correlation isn't causation. One of the reasons the yen is rising is on its status as a safe-haven currency, with inflows into the currency driven by market volatility. Another driver is due to U.S. dollar weakness as the market dials back its expectations for U.S. Federal Reserve interest rate hikes.
Capital Economics, in a note earlier this week, has also cited speculative traders covering large net short positions in the yen. Those likely built up due to expectations of the effectiveness of the BOJ's quantitative easing policy.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1