The Bank of Japan's surprise move to inflate its already huge stimulus programme exposes the cracks in Tokyo's plan to conquer deflation and boost growth, economists say, but it may give the government room to hike sales taxes again.
On Friday, the central bank said it would widen its asset-buying plan by as much as 20 trillion yen ($182 billion), bringing it to an eye-popping 80 trillion yen annually, sending the yen into a freefall and stocks soaring.
The BoJ also halved its annual economic growth forecast and trimmed consumer price expectations as a much-touted inflation target looks increasingly out of reach and Premier Shinzo Abe's plan to kickstart the economy stalls.
"The move by the BoJ shows that Abenomics is facing big problems. The economy is not growing, and is not showing the power to grow," said Ivan Tselichtchev, an economics professor at Japan's Niigata University.
"Thus the government and BoJ again have to resort to monetary alchemy. Again, it will have a stimulating effect, but only in the short term."
Friday's decision also threw into focus the sharp contrast of fortunes for the US and Japanese economies after the Federal Reserve last month brought an end to six years of bond-buying and is now considering an interest rate hike.
The move -- which is an attempt to stimulate growth by pumping massive amounts of money into the economy -- is the first since the bank unveiled the unprecedented easing scheme in April last year.
The programme -- and a target of 2.0 percent inflation by next year -- were cornerstones of the government's wider platform to turn around years of deflation and kickstart the economy.
When it was launched, Abe's revival plan was cheered by some and it seemed to be working well -- sending the yen tumbling against the dollar and the stock market surging to a six-year high by the end of 2013.
But critics derided it as a money-printing exercise that would leave Japan in a bigger financial hole. It already has the heaviest debt burden among rich nations at more than twice the size of the economy -- a figure that will expand as a rapidly ageing population strains the public purse.
- 'Preparing way for tax hike' -
And earlier this year "Abenomics" hit a wall as months of weak indicators were compounded by the introduction of the country's first sales tax hike in 17 years.
As consumers stopped spending the economy shrank an annualised 7.1 percent in April-June, and with the latest data also looking poor, there are fears of another contraction in July-September, which would put the economy in technical recession.
Abe is expected to announce next month if Tokyo will usher in a second tax hike in 2015, but fears of recession have cast doubt on that.
While the new revenue source was aimed at paying down an enormous national debt, it has put Abe in a tricky position as he balances his pro-spending growth plan with controlling government finances.
The fresh BoJ easing "confirms the scale of the challenge confronting the Abe government as it seeks to deliver stronger real growth and inflation while also reducing the fiscal deficit", said ratings agency Fitch.
Abe, whose approval ratings have sank, is also facing pressure to put in place some of the structural reforms he -- and most economists -- say are necessary to generate lasting growth.
"I think the real purpose of the additional easing, at this particular time, was to support the Abe administration and to prepare for the second tax hike," said Kenji Yumoto, vice chairman of the Japan Research Institute.
Data released Friday showed September inflation slowed and household spending slumped further, adding to concerns.
Japan's central bankers acknowledged struggles in changing consumer thinking on falling prices, saying converting the "deflationary mindset...might be delayed".
Deflation may sound good for consumers, but falling prices tend to put off buying in the hope of getting goods cheaper down the road, denting investment and economic growth.
Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo, said last week's measures underlined the bank's troubles in reaching its 2.0 percent inflation target.
"The core consumer inflation index, which will be announced next month, may come in lower than one percent," Ueno said.
"So, the BoJ is doing whatever it can. Monetary easing is a shot in the arm that can buy time for restructuring (the economy)."