The Bank of Japan (BOJ) pledged to increase purchases of exchange-traded funds (ETF) but kept interest rates steady at the close of its two-day meeting on Friday, confounding market expectations of hefty stimulus.
In an eagerly-awaited decision, the central bank said it would ramp up ETF purchases so that their amount outstanding will rise at an annual pace of 6 trillion yen ($56.7 billion), from 3.3 trillion yen previously.
It also doubled the size of a lending program for local companies to $24 billion. The program provides U.S. dollars to Japanese companies in a bid to support their overseas activities.
Notably, the central bank left interest rates steady despite mounting pressure for aggressive easing from Prime Minister Shinzo Abe's administration.
In a statement, the central bank flagged the recent Brexit vote, slowdown in emerging economies and volatile markets as reasons for its move.
It said Friday's measures were aimed at "preventing these uncertainties from leading to deterioration in business confidence and consumer sentiment as well as to ensure smooth funding in foreign currencies by Japanese firms and financial institutions."
Abe's promise of a hefty fiscal stimulus package on Wednesday had effectively forced the central bank to come up with matching monetary ammunition, taking stimulus expectations to sky-high levels. The 28 trillion yen ($265 billion) fiscal injection, which Reuters estimated at 6 percent of Japan's economy, surprised markets on Wednesday as many anticipated a fiscal package only sometime next week.
The BOJ believed the combination of Friday's monetary policy measures and the government's initiatives would produce "synergy effects on the economy."
Three years on following the BOJ's kitchen-sink stimulus in April 2013, the world's third-largest economy continues to struggle with low consumer prices. Core inflation—the BOJ's preferred gauge, which excludes energy and fresh food—rose just 0.8 percent on-year in May, still well off the government's target of 2 percent.
But analysts didn't have much faith in Friday's measures.
"With all the hype we've seen, expectations were super high and there's no question that today's decision—for markets—is going to be taken as a disappointment," said Jesper Koll, CEO of investment firm WisdomTree Japan KK.
Indeed, many commentators had expected a combination of Japanese government bond (JGB) and ETF purchases. Some players, such as HSBC, were even anticipating Kuroda to nudge interest rates deeper into negative territory by 10 basis points.
The central bank shocked the world with its introduction of negative interest rates in January. Under the policy, banks are charged for the privilege of parking some of their excess funds at the BOJ in order to prod them to lend more.
Because Friday's measures were small compared to market expectations, traders may interpret Friday's policies as a sign that the BOJ was running out of ammunition, said Kohei Iwahara, economist at Natixis Japan Securities.
It will be interesting to see how Kuroda explains the measures at the central bank's scheduled press conference later in the day, he added.