* Yen falls vs dollar, euro, traders cite month-end selling
* Euro hits 7-month high versus yen, 5-week high vs dollar
* Expectations of BOJ easing add to demand to sell yen
* Euro extends gains after Greek deal
By Jessica Mortimer
LONDON, Nov 30 (Reuters) - The yen hit a seven-month low against the euro and fell against the dollar on Friday, extending losses amid speculation that Japanese monetary policy could be aggressively eased when a new government is formed.
The euro also extended the previous day’s rise to hit a five-week high against the dollar, helped by falls in Spanish and Italian borrowing costs following a deal agreed earlier in the week to release aid funds to Greece.
German lawmakers on Friday approved the latest Greek bailout by a large majority.
The euro rose 1 percent on the day to hit 107.675 yen on the EBS trading platform, its highest since late April. Market players cited month-end demand for the euro from Japanese importers.
Against the dollar, the euro was up 0.2 percent at $1.3003, having earlier hit $1.3029, its strongest since Oct. 23. Traders reported offers at $1.3040-50 which may limit its gains.
“It looks like the market is buying into the fact that the euro zone is kicking the can down the road and not allowing Greece to default,” said Carl Hammer, chief currency strategist at SEB in Stockholm.
“The euro is already above $1.30 and there may be scope for more strengthening towards $1.32 or $1.34.”
The yen continued to fall on bets the Bank of Japan will ease policy if the opposition Liberal Democratic Party wins an election on Dec. 16, even though LDP leader has recently toned down demands for looser policy.
“I think the yen will slowly but surely weaken,” said Neil Jones, head of hedge fund FX sales at Mizuho Corporate Bank, who expected the dollar to rise to 90 yen by the end of March.
The dollar climbed 0.7 percent to 82.66 yen, close to a near eight-month high of 82.84 yen hit last week, and up more than 3 percent on the month.
Market players said uncertainty over whether U.S. policymakers can reach a deal to avert a looming “fiscal cliff” of tax hikes and spending cuts may also temper dollar gains, although many still expected yen weakness to persist.
The euro climbed above $1.30 earlier this week on expectations a deal would be reached, and losses were limited even after top Republican lawmaker John Boehner dented those hopes.
Investors tend to sell the euro and buy the highly liquid dollar on any headlines that suggest the U.S. talks are not going well. Failure to reach a deal before tax hikes and spending cuts kick in early next year could tip the world’s largest economy into recession.
Michael Sneyd, FX strategist at BNP Paribas, said policymakers were likely to reach a last minute deal, but recent price action suggested investors were positioned for bad rather than good news, meaning euro falls should be limited.
“There could be more choppiness around headlines, but the way the market is positioned it seems we will have more of a move on positive headlines than negative ones,” Sneyd said.
The euro has also been helped by falls in Spanish and Italian bond yields this week. The 10-year Italian bond yield was steady on Friday after hitting a two-year low on Thursday.