* Euro/yen pulls away from previous day’s 18-month high
* Yen takes breather after recent slide
* Dollar/yen pauses after hitting 29-month peak
By Masayuki Kitano
SINGAPORE, Jan 3 (Reuters) - The yen edged higher on Thursday but remained near a 29-month low versus the dollar and looked fragile, weighed by expectations of more forceful monetary stimulus by the Bank of Japan.
The dollar slipped 0.1 percent to 87.26 yen. The dollar rose to as high as 87.36 yen earlier on Thursday on trading platform EBS, the greenback’s highest level against the Japanese currency since late July 2010.
“Technically dollar/yen looks somewhat overbought here. It’s gone a long way in a very short time,” said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore, adding that the dollar could see some consolidation in the near term before heading higher.
“Over the next few months, I think the bias is still for a higher dollar/yen rate,” he said.
The yen also clawed higher on the crosses. The Australian dollar dipped 0.1 percent to 91.47 yen. The Aussie dollar had climbed to 91.77 yen on Wednesday, its strongest level against the yen since September 2008, according to Reuters data.
The euro fell 0.5 percent to 114.66 yen, pulling away from an 18-month high of 115.995 yen set on trading platform EBS on Wednesday.
Against the dollar, the euro slipped 0.3 percent to $1.3139 , with one trader saying that stop-loss selling helped add to the euro’s decline on Thursday.
The yen had tumbled on Wednesday after U.S. lawmakers passed a bill on Tuesday to avoid the “fiscal cliff”, bolstering investors’ appetite for risky assets.
Over the past several weeks, the yen has also weakened on expectations that a new Japanese government led by Prime Minister Shinzo Abe would push the Bank of Japan into more forceful monetary easing to beat deflation.
Abe has called on the BOJ to set a 2 percent inflation target, double the central bank’s current goal. Abe has also said that he will pick someone who agrees with his views on the need for bolder monetary easing to succeed BOJ Governor Masaaki Shirakawa when the governor’s term expires in April.
With a number of potentially yen-bearish events coming up over the next few months, including the BOJ’s policy meeting on Jan. 21-22 and the forthcoming change in BOJ leadership, the dollar seems likely to head higher versus the yen, said a trader for a Japanese bank in Bangkok.
To be sure, since the dollar’s recent rise against the yen has been surprisingly fast, there is also a risk that the speed of any pull-back in the dollar could be rapid, the trader said.
“But that is basically a risk scenario, and while the dollar could see a dip of one yen or so, I think it will probably overcome such declines and keep heading higher,” he said.
The dollar climbed 12.8 percent against the yen in 2012 for its biggest yearly percentage rise since 2005.
The bulk of those gains came late in 2012, and the dollar is now up more than 10 percent against the yen compared to a trough hit in early November.