* Yen hits 20-month trough vs dollar, 8-1/2 month low vs euro * Most expect BOJ to ease policy at this week's meeting * But hefty short yen positioning may limit yen falls By Jessica Mortimer LONDON, Dec 17 The yen fell to its lowest in more than a year and a half against the dollar on Monday after a landslide election victory for Japan's Liberal Democratic Party, which is committed to aggressive monetary easing. The LDP's victory will bring former prime minister Shinzo Abe back to power. Abe has called for "unlimited" monetary easing, an increase in the inflation target and big spending on public works to rescue the economy. Analysts expect the prospect of ultra-loose monetary policy to weaken the yen further in coming weeks, depending on the pace of policy change. However, given that bets against the yen are already hefty, losses could be limited. The dollar was last up 0.4 percent on the day at 83.82 yen , having earlier hit 84.48 yen, its strongest since April 2011. This left it with the potential to target the 200-week moving average at 85.008 yen. The LDP's huge victory will give the new government a greater chance of pushing through policies and possibly appoint a more dovish central bank chief next year. The LDP and its ally the New Komeito party secured the two-thirds majority needed to overrule parliament's upper house. "The fact that the LDP secured a two-thirds majority gives them a strong mandate and will lead to significant policy changes," said Ian Stannard, head of European currency strategy at Morgan Stanley. "The yen weakening trend will be sustainable and dollar/yen will move higher while euro/yen also has the potential to move sharply higher." He said Morgan Stanley forecasts the dollar to rise to 90-92 yen by the end of 2013, while the euro could rise to 113 yen by the end of this year. The euro jumped to around 111.30 yen, its highest since late March. It eased back as some funds liquidated long euro positions, leaving it last up 0.3 percent at 110.35 yen. The next test is this year's high of 111.43 yen, with support at Friday's session high of 109.98 yen. The Bank of Japan is scheduled to meet on Wednesday and Thursday. It will most likely increase its asset-buying and lending programme, currently at 91 trillion yen, by another 5-10 trillion yen, sources have said. The euro's gains against the yen also helped it against the dollar. It was last steady at $1.3155, having hit $1.3192 in Asia, its highest since early May. Analysts said the dollar may be hampered by any signs of trouble in U.S. talks to avert the "fiscal cliff" of $600 billion worth of tax increases and spending cuts due next month. HEFTY SHORT YEN BETS Although the yen will continue to fall following the LDP's victory, its losses could be limited in the short term as investors pare large short positions taken before the elections. Data from the Commodity Futures Trading Commission on Friday showed speculators' bets against the yen were at their highest in over five years. Investors had turned bearish on the yen in anticipation of an LDP victory. Some analysts warned the yen may be poised for a rebound as Abe's actions could fall short of his tough talk, at least in the short term, while the BOJ's easing steps are expected to trail those of the U.S. Federal Reserve for now. "We think the dollar has come too far and too strong in a short period of time," said Marcus Hettinger, global currency strategist at Credit Suisse, Zurich. "Unless the Bank of Japan's policy is as expansionary as the Fed's we could see some pullback in the dollar. But every dip in the dollar is a buying opportunity and we expect dollar/yen to touch 84.40 yen in one month." Given some choppiness in the spot pair in the coming weeks, strategists at Barclays recommended maintaining long positions through three-month dollar/yen call options, due to the stronger mandate for the BOJ to target higher inflation. "Our estimates suggest a 10 percent multilateral nominal (yen) depreciation would be needed to get a one-off inflation boost of just 1.5 percent," they said in a note to clients.