FOREX-Euro and dollar slip versus yen, falls seen limited
* Dollar/yen pressured by profit-taking
* Support for dollar at around 86.52 yen, Jan. 1 low
* Euro to remain firm vs dollar ahead of ECB meeting
LONDON, Jan 8 (Reuters) - The dollar and the euro fell against the yen on Tuesday as investors took profit on recent gains against the Japanese currency triggered by anticipation of looser monetary policy in Japan.
Analysts and traders said the yen had scope to rebound further in the coming days, although the prospect of the Bank of Japan adopting an easing monetary policy soon would limit any gains.
The dollar fell to a session low of 87.23 yen as investors booked profits on its rally of nearly 12 percent over about two months which saw it touch 88.48 yen, its highest level since July 2010.
It was last down 0.4 percent at 87.49 yen, with solid support expected at around 86.52 yen, the low hit on Jan. 1.
The dollar has rallied against the yen since Japan's newly- elected government said it would push the Bank of Japan headed by Governor Masaaki Shirakawa to adopt more forceful monetary stimulus measures.
But analysts said investors were nervous of pushing the yen too much lower due to the risk the BOJ may not opt for aggressive stimulus as early as its next meeting on Jan. 21-22.
"We still have Shirakawa (as BOJ governor) who is not leaving until end of March so there is a risk of disappointment," said Chris Turner, head of FX strategy at ING.
He said that while the dollar could see shallow corrections, it was unlikely to fall much below 86 yen as there had been "a major reversal in dollar/yen trend" due to expectations of more easing.
Earlier on Tuesday the euro gained against the yen after Japanese Finance Minister Taro Aso said the government would buy bonds issued by the European Stability Mechanism (ESM), the euro zone's permanent bailout fund. The move was seen having little impact on the yen.
The euro was last down 0.3 percent on the day at 114.80 yen, having earlier hit a session high of 115.25 yen after the Aso comments. It stayed below an 18-month high of 115.995 yen set on Jan. 2 on trading platform EBS.
Strategists said the decision would have little impact on the yen as Japan would most likely buy ESM bonds using existing foreign reserves.
"Japan's comments helped euro and dollar/yen a bit higher at first. But then everyone realised they are just going to use current reserves so there should actually be no impact," said Geoff Kendrick, FX strategist at Nomura.
"We will perhaps see a marginal retracement (in dollar/yen) over the next couple days and I'd be slightly more bearish dollar over the next few days ... on profit-taking," Kendrick said.
The euro was flat on the day against the dollar at $1.3114 , above a three-week low of $1.2998 set on Friday. Chart support was cited just below $1.30, near its 50- and 55-day moving averages.
Markets are positioned for the European Central Bank to keep rates on hold when they meet this Thursday.
With no significant economic data due on Tuesday, the euro would stay in a range ahead of the ECB meeting and Spanish and Italian bond auctions towards the end of the week.
However, any hint by ECB policymakers about future interest rate cuts could undermine the currency.
"Markets have backed away from peripheral issues in Europe for now and unless we start to get broader concerns, euro/dollar will continue to trade sideways for now," Nomura's Kendrick said.
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