* Yen hits lowest level vs euro since August 2011
* BOJ kicks off 2-day meeting, expected to ease policy
* Progress in U.S. fiscal talks boost hopes of a deal
* Euro hits 7-1/2-month high vs the dollar
By Masayuki Kitano
SINGAPORE, Dec 19 The yen hit a 16-month low
against the euro on Wednesday, weighed down by expectations the
Bank of Japan will unveil more monetary stimulus on Thursday,
after a two-day policy meeting.
The euro hit its strongest level against the yen since
August 2011 and also touched a 7-1/2-month high versus the
dollar, as tentative signs of progress in U.S. budget talks
helped bolster demand for riskier assets.
The euro rose to as high as $1.3256 on trading
platform EBS, its strongest level since early May. It last
changed hands at $1.3246, up 0.1 percent on the day.
Against the yen, the euro rose to as high as 111.78 yen
as of 0626 GMT, its highest level in about 16 months.
With the yen dented by expectations for more BOJ monetary
easing, the dollar edged up 0.2 percent to 84.35 yen.
That was close to the dollar's high of 84.48 yen hit on Monday,
the greenback's strongest level in 20 months.
Persistent yen-selling interest from non-Japanese players in
the dollar against the yen, as well as in cross/yen pairs, has
helped to drag the yen lower, said Jesper Bargmann, Asia head of
G11 spot FX for RBS in Singapore.
"We've seen renewed interest in dollar/yen," he said, adding
that there were continued expectations that a new Japanese
government would keep putting pressure on the Bank of Japan.
The yen skidded on Monday after Japan's conservative Liberal
Democratic Party (LDP), which is committed to aggressive
monetary easing, won a landslide election victory.
The dollar is likely to stay supported against the yen ahead
of the BOJ's policy decision on Thursday, traders said.
"I don't think we're going to break back down through 83.70
before the BOJ announcement tomorrow," said Bargmann at RBS.
In addition to speculation that the BOJ might ramp up
monetary easing in coming months, a deterioration in Japan's
trade balance has also contributed to the recent bearish
sentiment against the yen.
The latest data showed that Japan's trade balance came to a
deficit of 953.4 billion yen in November.
While that deficit was smaller than what economists had
expected, it was the fifth straight month of deficits and was
the largest trade deficit since January.
The yen showed little reaction to the data during
Wednesday's Asian trade.
The BOJ kicks off its two-day meeting on Wednesday and is
under intense political pressure to expand its monetary
Fourteen of 19 economists polled by Reuters last week said
they expected the BOJ to ease this week, most likely by
increasing its 91 trillion yen ($1 trillion) asset buying and
lending programme by up to 10 trillion yen.
In addition, there is also some focus on whether the BOJ
will make any tweaks to its inflation goal, said a trader for a
Japanese bank in Singapore.
"There are some expectations that something related to an
inflation target might come out," he said.
On Tuesday, Japan's next prime minister, Shinzo Abe, had
made a rare direct push for a higher inflation target to BOJ
Governor Masaaki Shirakawa, calling on the BOJ to consider
establishing a 2 percent inflation target, double the central
bank's current price goal.
Several sources familiar with the BOJ's thinking have said
the central bank will consider no later than January whether to
adopt a 2 percent inflation target.
Optimism for a deal to avert a looming U.S. fiscal crisis
has grown after President Barack Obama made a concession with
his offer to limit tax increases to incomes exceeding $400,000
per household, a higher threshold than what the president had