* Yen down across the board, even against USD
* Fed ties policy to specific econ target; extends debt-buying programme
* BOJ under intense pressure to ease more decisively
By Ian Chua
SYDNEY, Dec 13 (Reuters) - The yen languished at eight-month lows against the dollar and euro on Thursday as markets expect the Bank of Japan to expand its own easing programme after the Federal Reserve surprised by explicitly linking policy to unemployment.
The greenback was at 83.18 yen, having jumped 0.8 percent to a high of 83.30 yen, while the euro rallied more than 1 percent to a high around 109.05 yen. The Australian dollar climbed to 88.05, its best level since mid-March.
The Bank of Japan's Tankan survey is out Friday and will likely show sentiment among manufacturers deteriorated in the three months to December, adding to calls for bolder action from the BOJ to stimulate the world's third biggest economy.
The BOJ meeting will take place after Sunday's election which looks set to see the opposition Liberal Democratic Party clinch a resounding victory. LDP leader Shinzo Abe has been pushing the BOJ for more powerful monetary stimulus.
Part of the reason for the rise in dollar/yen was higher U.S. Treasury bond yields, which makes the dollar relatively more attractive against its low-yielding Japanese peer.
"Dollar/yen has been moving up for a little while now and you're seeing the trend continue. It gets moved a fair bit by U.S. yields and those moved up despite what the Fed did, shows you a bit of market positioning," said Joseph Capurso, a strategist at Commonwealth Bank.
While the yen was the biggest loser among the major currencies, the dollar also struggled after the Fed took an unprecedented step of pledging to keep interest rates near zero until the jobless rate falls to 6.5 percent, a long way from the current 7.7 percent.
As expected, the Fed will replace the expiring 'Operation Twist' programme with a fresh round of Treasury purchases that will be funded by essentially creating new money, further expanding its $2.8 trillion balance sheet.
"We still hold the view that the Fed has fully delivered, and that the numerical targets set a high threshold for the eventual Fed policy exit, which still remains in a very distant future," said Vassili Serebriakov, a strategist at BNP Paribas.
"This implies the Fed is on course to expand its balance sheet substantially, a regime consistent with a weak USD environment."
The dollar index fell 0.4 percent to a low of 79.711, before clawing back some of its losses to 79.875 after Fed Chairman Ben Bernanke reiterated that monetary policy won't be enough to offset damage from the "fiscal cliff".
He was referring to automatic tax hikes and federal spending cuts that will begin to take effect at the end of the year unless the U.S. Congress acts first.
The euro bought $1.0370, having shot up to a high around $1.3098, while the Australian dollar scaled a three-month peak of $1.0585, bringing the September high of $1.0625 in view.
Bernanke's concern about the 'fiscal cliff' has put more pressure on congressional Republicans and the White House to strike a deal, although sharp differences between both parties remained and negotiators warned the showdown could drag on past Christmas.