* BOJ to increase buying of ETFs
* But keeps money base target unchanged at Y80 trln
* Yen jumps as BOJ easing falls short of expectations (Updates prices, adds comments)
By Masayuki Kitano
SINGAPORE, July 29 (Reuters) - The safe-haven yen jumped against the dollar on Friday after the Bank of Japan's modest monetary policy easing disappointed investors who had been hoping for more radical stimulus measures.
The dollar last traded at 103.46 yen, down 1.7 percent. The dollar initially rose to 105.75 yen right after the BOJ's announcement but later tumbled to a 2-1/2 week low of 102.705 yen.
The BOJ announced a modest increase in purchases of ETFs, but maintained its base money target at 80 trillion yen ($775 billion) as well as the pace of purchases for other assets including Japanese government bonds.
The BOJ also kept negative interest rates unchanged at minus 0.1 percent.
"The BOJ clearly disappointed by merely expanding on its ETF purchases, leaving the annual pace of its monetary base increase and policy rate unchanged," said Heng Koon How, senior FX investment strategist for Credit Suisse.
"We can continue to expect elevated volatility and possible short-term risk of yen strength back towards possibly 100."
Trading conditions in the dollar versus the yen had been very illiquid going into the BOJ's announcement, with the bid to ask spread widening to 0.40 yen at one point, although they later narrowed back to around 0.02 yen or so as trading conditions normalised.
The market reaction to the BOJ's decision was exacerbated by a recent build up in expectations for the central bank to unveil significant monetary easing, in lockstep with the government's plans for increased fiscal spending.
"There had been pretty strong hopes for combined measures. There is strong appreciation pressure on the yen now that such hopes have dissipated," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
The euro slid 1.6 percent to 114.69 yen, while the Australian dollar shed 1.5 percent to 77.93 yen.
On Wednesday, the Japanese government unveiled a surprisingly large 28 trillion yen ($267.58 billion) stimulus package, firmly placing the stimulus ball in the central bank's court.
Sources told Reuters on Thursday that the government package contains direct fiscal spending of only 7 trillion yen, which is likely to disappoint investors hoping for bigger outlays given the large headline figure.
The dollar index, which measures the U.S. unit against six major peers, was down 0.4 percent at 96.384 and set a 2-week low at 96.216.
Investors will await the U.S. government's initial reading on second quarter gross domestic product later on Friday. The economy was expected to expand at an annualised 1.8 percent, the Atlanta Federal Reserve's GDP Now forecast model showed on Thursday.
Against the dollar, the euro edged up 0.1 percent to $1.1083 .
Reporting by Masayuki Kitano, additional reporting by Lisa Twaronite in Tokyo; Editing by Sam Holmes