The Bank of Japan surprised markets Friday with only minor tweaks to its giant stimulus plan that reignited concerns its monetary policy arsenal is almost empty.
Tokyo's Nikkei 225 stock index dropped and the yen surged as the underwhelming changes burst hopes for a one-two punch to boost the sluggish economy -- after the government unveiled a huge spending package this week.
Japanese officials are under intense pressure to deliver as the fate of Prime Minister Shinzo Abe's faltering bid to reignite the world's number three economy, dubbed Abenomics, looks increasingly gloomy.
"The market had expected more than what the BoJ announced today, which triggered some disappointment and led to the yen's surge," said Yosuke Hosokawa, head of the forex sales team at Sumitomo Mitsui Trust Bank.
"This shows the ceiling for monetary policy."
The dollar briefly sank below 103 yen from 104.20 yen, while Tokyo's Nikkei 225 index dived 1.7 percent immediately after the BoJ issued its statement after a two-day meeting.
The gathering was its first since Britain's shock vote last month to quit the European Union. The referendum result hammered financial markets and sparked a yen rally that is threatening corporate Japan's bottom line -- and fanning concerns about growth.
Government figures published on Friday morning did little to soothe those worries.
Spending by households across the country fell in June while inflation dropped for a fourth straight month, while business confidence sits at its lowest levels since Abe swept to power in late 2012.
Weak readings have aggravated worries about second-quarter economic growth, after Japan dodged a recession in the first three months of the year.
On Friday, the BoJ said it would boost its exposure to riskier assets by nearly doubling its annual purchases of exchange-traded funds to about six trillion yen.
It also said it would launch a "comprehensive assessment" of its own growth policies, without giving details.
ETFs are securities linked to a share index or other investment, such as commodities or bonds, that trade like common stock.
The BoJ also said it would double the size of a US dollar lending programme to $24 billion, which supplies greenback-denominated funds to boost Japanese firms' overseas business activity.
But it opted to leave a massive 80 trillion yen ($772 billion) annual bond-buying programme unchanged.
It also refrained from cutting interest rates deeper into negative territory in a bid to stir lending and stoke the wider economy.
The rate plan, launched in January, is meant to encourage commercial banks to loan money to people and businesses by effectively charging them to keep excess reserves in the BoJ's vaults.
There was also speculation the bank may turn to unconventional measures, including so-called "helicopter money".
The term refers to a controversial policy of central banks to funnel funds directly into the economy -- possibly including into people's bank accounts -- rather than through the financial system by means of more traditional bond-buying and asset purchases.
"Today's decision is clearer evidence of the BoJ's limited room for further easing," Takahiro Sekido, a Japan strategist at Bank of Tokyo-Mitsubishi UFJ, said in an e-mail.
The announcement comes after Tokyo on Wednesday announced a whopping 28 trillion yen package aimed at kickstarting growth.
But analysts questioned how much of it was immediate fresh spending, and the government has so far offered few specific details.
Japan's spend-for-growth policies have set it apart from some of its rich nation counterparts, including Germany which has been reluctant to endorse them, seeing it as an ineffective way to stimulate the economy.
Japan's leader had promised the package in response to Brexit and the subsequent rise in the yen.
Investors tend to buy Japan's currency as a safe bet in times of turmoil or uncertainty. But it makes its exporters less competitive overseas and hits profits at Japan Inc.
Abe's plan -- a mix of massive monetary easing, government spending and red-tape slashing -- initially brought the yen down from record highs and set off a stock market rally.
But promises to cut through red tape have been slower, and Abe's plan to buoy Japan's once-booming economy has looked increasingly unrealistic.