Earlier this month, the Bank of Japan gave journalists a tour of renovations making its 121-year-old headquarters more earthquake resistant. The structure has long been a source of engineering pride, having survived Tokyo’s devastating 1923 trembler.

It was a metaphor-rich pilgrimage for BOJ scribes. After engineering a couple of monetary quakes of his own, BOJ Gov. Haruhiko Kuroda also is in renovation mode. The policy infrastructure he’s built since taking the helm in March 2013 is reasonably sound, but the threat of tectonic events from abroad has Kuroda working up new designs.

One of them may be on display following this week’s March 15-16 policy meeting: a stealth tapering that could send tremors through markets. And unnecessarily so.

The central bank’s official target of expanding bond holdings by ¥80 trillion yen a year probably won’t be met by the end of this fiscal year. A BOJ blueprint released late last month suggests Kuroda could come in roughly 18 percent below the annual goal. But it’s not what investors think. Kuroda & Co. isn’t throttling back so much as it’s running out of debt to buy.

With the BOJ already owning more than 40 percent of outstanding government bonds, “technical/regulatory constraints” are challenging the central bank every bit as much as the deflationary mindset it seeks to change, says Jefferies analyst Sean Darby.

That’ll happen in an economy in which banks, pension funds and insurance companies have their own bond-hoarding obsessions. It puts constraints on them selling enough debt for the central bank to expand its own efforts to stimulate the economy.

It’s a critical distinction, as Japan’s economy experiences a decidedly schizophrenic first quarter. There are some signs that, yes, growth is perking up thanks to a weaker yen. Purchasing managers data, as well as manufacturing export trends and record-low unemployment suggest Japan Inc. is at least stabilizing. The catch is that, as Darby puts it, “the transmission mechanism between a tight labor market and higher wages is not necessarily working.”

Herein lies the main reason the BOJ isn’t about to tighten or even taper on a consistent basis. Ultra-loose policy is the glue holding the economy together, but it’s hardly fuel enough to boost growth and wages on a sustainable basis. That requires bold structural reforms of the kind Prime Minister Shinzo Abe has been pledging for more than four years. As I’ve argued before, Japan’s deflation is the result of aging population and weak confidence, not tight money supply.

If Kuroda wants to act seismically once again, he needs to expand the BOJ’s tentacles beyond the obvious. It could, for example, “extend the maturity of its purchases to longer-dated bonds, in a manner similar to the U.S. Federal Reserve’s ‘operation twist’ in 2011,” say economists at the Washington-based Institute of International Finance.

Or it could really think out of the proverbial box, gorging on corporate debt along with asset-backed and mortgage-backed securities and pouring more cash into real-estate investment trusts. Why not buy local government debt to free municipal balance sheets so small-and-midsize cities far from Tokyo and Osaka can invest in jobs and support startups? Kuroda could even buy up distressed assets directly to pump some financial life into rural Japan. He could literally hand out cash to households via BOJ debit cards. Wildly unconventional, for sure, but it’s not like anything else is working for a BOJ flooding markets with cash that’s not being deployed.

In an August 2016 report, CLSA’s Nicholas Smith detailed how the BOJ was effectively “nationalizing the stock market.” Sixteen months on, Nikkei investors seem to be crying out for money central bank support. Unconventional? Yes, particularly considering Japan is a Group of Seven economy — not China. Still, that’s where Kuroda finds himself nearly four years after he moved into his BOJ office: barely keeping the economy stable as Abe’s team dithers on vital reforms to enliven innovation, productivity and wage growth.

Take Toyota, which is riding high — making tens of billions of dollars a year — thanks to a weaker yen. Its planned pay increase this year: $11 per month. That’s enough for, maybe, a couple of beers, but won’t help the BOJ create inflation or Abenomics boost household and business confidence. Toyota’s stinginess is Exhibit A for why quantitative easing alone can’t revive Japan. The lesson, says Sayuri Shirai, a former BOJ board member now with the Asian Development Bank Institute, is that reliance on monetary policy reduces the “sense of urgency for the government to implement effective fiscal policy and structural reforms.”

The most important solution is for Abe to get on with deregulation that awakens Japan’s animal spirits. But a little monetary reverse engineering at BOJ headquarters couldn’t hurt. For inspiration, all Kuroda needs to do is look at the hard hats outside his office window.

William Pesek is executive editor of Barron’s Asia. www.barronsasia.com

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