* BOJ to increase buying of ETFs
* But keeps money base target unchanged at Y80 trln
* Yen jumps as easing falls short of expectations (Updates after start of European trade)
By Patrick Graham
LONDON, July 29 (Reuters) - The yen soared against the dollar on Friday after a round of modest monetary policy easing from the Bank of Japan disappointed investors who had been hoping for at least a hint of more radical stimulus.
In a month rife with speculation that Japanese authorities were readying to move towards "helicopter money" drops of cash to businesses and consumers, the yen has been more volatile than at any time since the 2008 financial crisis.
It surged by almost 3 percent, peak-to-trough in the 30 seconds following the Bank of Japan decision and as Governor Haruhiko Kuroda's news conference continued early in the European day, it was up almost 2 percent against both the euro and dollar.
That still left it short of levels seen as investors flooded into the traditional security of Japan after Britain's vote to leave the European Union last month but saw a number of banks again calling the yen higher.
"Kuroda ordered a review of the effectiveness of policy for the next meeting, which will keep easing expectations alive, but in our view not sufficiently to stop the trend of yen strength reasserting itself," said Adam Cole, head of G10 FX Strategy at RBC Capital Markets in London.
The dollar last traded at 103.31 yen, down 1.9 percent, having hit a 2-1/2 week low of 102.705 yen after the announcement of the BOJ's decision. The euro was alos 1.7 percent weaker at 114.59 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. Many in markets had expected more cuts in rates as well as possibly more bond-buying and Japanese bond yields jumped by around 10 basis points in response.
"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 that effectively would fund 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 Japanese government unveiled a surprisingly large 28 trillion yen ($267.58 billion) stimulus package on Wednesday but sources told Reuters on Thursday that the government package contains direct fiscal spending of only 7 trillion yen, also likely to disappoint investors.
Burdened by the yen fall, the dollar was half a percent lower against a basket of its peers at 96.289 having hit set a 2-week low at 96.216. The euro edged up 0.2 percent to $1.1097. (Additional reporting by Masayuki Kitano in Singapore and Lisa Twaronite in Tokyo; Editing by Alison Williams)