Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

When Haruhiko Kuroda took his country on an unprecedented monetary adventure in April 2013, it seemed like he was only following the eighth rule of Fight Club: "If this is your first night, you have to fight." Three years later, markets are wondering if the Bank of Japan governor has moved on to the film's fifth rule: "One fight at a time, fellas."

The monetary chief would have been perfectly aware that not bulking up the BOJ's bond-buying and negative interest rate programs would crush the yen bears, and a stronger home currency would have damaging consequences for Japan Inc.'s improved profitability. But given how hard it would have been to please the helicopter-money dreamers, Kuroda must have concluded that the only fight he could hope to win for now was in the stock market.

Gimme More
Amounts purchased have surged as part of the Japanese central bank's efforts to stimulate the economy
Source: Bloomberg

Or at least that's the message he gave on Friday by announcing a near-doubling of the central bank's ETF-buying plan: Until now, the BOJ aimed to boost its holdings of exchange-traded funds by 3.3 trillion yen ($31.8 billion) annually; now it will seek to hit 6 trillion yen. It didn't take long for Japanese stocks to shrug off the disappointment of Kuroda's standstill on the exchange rate. The benchmark Topix index rose 1.2 percent.

Kuroda's new goal can potentially act as a prop for stock prices. Since early 2013, Japanese ETFs that primarily invest in the country have seen 8 trillion yen of inflows. The BOJ's hoarding of ETFs has been at least partly responsible for more fund units getting created and bought.

Upward Ever Upward
Net inflows into Japan-focused ETFs have touched 8 trillion yen in less than four years
Source: Bloomberg

A 3 trillion yen increase in the BOJ's ETF holdings would mean more money going into stock markets, which might even help Kuroda cheat a little on the third rule of Fight Club: "Someone yells stop, goes limp, taps out, the fight is over."

The debt market went limp when Kuroda started scooping up Japanese government bonds by the truckload. The currency market yelled stop when negative interest rates introduced earlier this year caused the yen to strengthen. The only saving grace is that the equity market hasn't tapped out. In U.S. dollar terms, the Topix is down just 3 percent from a year earlier, but it's still up 38 percent from four years ago when Kuroda was busy eradicating poverty at the Asian Development Bank in Manila. For Japanese investors, the home market has been more rewarding in yen terms than faster-growing emerging markets such as China, India and the Philippines.

But fluffier equity prices or the carrot of cheaper credit that Kuroda is dangling before Japanese companies won't be enough to boost new investment. For that, bosses and finance chiefs would need to be able to form reasonable opinions about whether the yen, which surged past 104 against the dollar on Friday, might soar to 80 two years from now, or slump to 120.

At present, nobody quite knows where Japan is going with its monetary policy. To allay those concerns, Kuroda has promised a "comprehensive assessment" by the next policy meeting, by which time he'll also know exactly how much new spending Prime Minister Shinzo Abe plans as part of his recently announced $265 billion fiscal stimulus.

If Kuroda disappoints yen bears in September, his fight against deflation might well and truly be over.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andy Mukherjee in Singapore at

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