* Yen jumps as easing falls short of expectations
* BOJ increases only buying of ETFs
* Keeps money base target unchanged at Y80 trln
* Dollar also lower against euro, Swiss franc (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 outright "helicopter money" drops of cash to 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 by midday in Europe was up almost 2 percent against the dollar and more than 1.5 percent against the euro.
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 a number of banks and investment houses were again calling the yen higher.
"(BOJ Governor) 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 103.33 yen, down 1.9 percent, having hit a 2-1/2 week low of 102.705 yen after the BOJ's decision to expand only its purchases of stock market-linked ETF paper. The euro was also 1.7 percent weaker at 114.59 yen.
The increase in purchases of ETFs was also only modest, and the bank overall 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.
"With the BOJ unwilling to be more aggressive and also hesitant to intervene in the FX market, the market will question (its) determination to see a weaker yen," said Matthias Hoppe, a portfolio manager at global investment firm Franklin Templeton Solutions.
"Much of the temporary weakening against the USD we have seen since the beginning of July will be reversed."
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.
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.
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 gained 0.3 percent to $1.1097 and another currency whose central bank has been acting aggressively, the Swiss franc, 0.6 percent to 0.9747 francs per dollar. (Additional reporting by Masayuki Kitano in Singapore and Lisa Twaronite in Tokyo; Editing by Tom Heneghan)