* Front runner in Japan's election calls for weaker yen
* Euro inches up vs dollar, helped by yen selling
* IMF suggests Europe do more to held Greece
By Julie Haviv and Gertrude Chavez-Dreyfuss
NEW YORK, Nov 15 The yen lost more than 1 percent of its value against the dollar for a second straight session on Thursday, hitting its lowest in nearly seven months on expectations the Bank of Japan will engage in more aggressive monetary easing.
The euro, meanwhile, rose for a second day against the dollar as investors continued to the cover their short positions after five days of losses. The euro's gains came despite data showing the euro zone slid into its second recession since 2009 in the third quarter of 2012.
The dollar, on the other hand, posted its largest gain against the yen since mid-September after Shinzo Abe, the head of Japan's Liberal Democratic Party and front runner in next month's election, said he wants the Bank of Japan to consider sub-zero interest rates.
The euro also rallied to a two-week high against the yen.
Abe, pushing the central bank for bold easing steps, told reporters he wants to work with the BOJ to reverse the yen's strength, which he said hurts the competitiveness of small firms.
"The catalyst has clearly been politics, including a further step up in political pressure on the BoJ to ease aggressively," said Jens Nordvig, global head of G10 strategy at Nomura Securities in New York.
The dollar rose to 81.45 yen, its highest level since late April. It last traded at 81.19, up 1.2 percent on the day. That followed a gain of 1.1 percent the previous day.
Nomura's Nordvig said the "new BoJ" theme, and changing long-term flows, are key reasons his firm forecasts dollar/yen at 85 in early 2013.
However, Samarjit Shankar, managing director of global strategy at custody bank BNY Mellon, said its flow indicators suggested the yen was modestly bought by institutional investors on Thursday for the first time in several sessions after the currency's sharp losses.
"These fresh modest inflows, if sustained, suggest the ascent of dollar/yen and euro/yen thus far this week may be close to ending for now," said Shankar.
Nevertheless, the Bank of Japan is expected to hold its fire at a meeting of its policy board next week and may also defy market expectations for action in December.
The euro hit a high of 103.98 yen, the highest since Nov. 1 and last traded at 103.67, up 1.4 percent, as investors unwound short euro positions taken earlier this week on concerns about when Greece will receive its next tranche of financial aid.
The International Monetary Fund has done what it can to help Greece reach debt sustainability, an IMF spokesman said, leaving the window open for further action by the indebted country's European lenders.
The euro last traded up 0.4 percent at $1.2782, recovering from Tuesday's two-month low of $1.2660. Traders cited buying by European corporates earlier in the session that helped lift the euro.
The single currency, however, looked vulnerable, with concerns about slowing growth in the euro zone and uncertainty over aid for Greece and Spain seen by analysts as likely to cap gains.
But some analysts said investors were wary of selling the euro heavily in case policymakers surprised markets with decisive action to tackle the debt crisis.
BNY's Shankar said overall there is still a strong undercurrent of risk aversion in the market. Thursday's weak U.S. economic numbers have heightened that sentiment.
The number of Americans filing new claims for jobless benefits surged last week to a 1 1/2-year high. Separate data showed U.S. consumer prices rose in October and a gauge of manufacturing in New York state showed activity slowed in November for a fourth straight month.
Meanwhile, factory-sector sentiment dropped in the U.S. Mid-Atlantic region.
"Riskier positions are small, larger positions are being pared, and nimbleness is a virtue amidst growing uncertainties relating to the Eurozone crisis, U.S. fiscal cliff, renewed tensions in the Middle East and global growth moderation," said Shankar.
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