* Yen on defensive after renewed monetary easing pressure
* Dollar/yen resistance seen at 200-week average at 85.03 yen
* Dollar broadly supported as fiscal cliff deadline looms
By Hideyuki Sano
TOKYO, Dec 25 The yen hit a 20-month low against the dollar on Tuesday as Japan's incoming prime minister stepped up pressure on the Bank of Japan (BOJ) to easy monetary policy, while the dollar was buoyed by uncertainty about U.S. budget talks.
The dollar rose to as high as 84.965 in early Asian trade, its highest level since April 2011, before giving up gains to last stand at 84.84 yen, in thin Christmas holiday trade. Many trading centres closed.
Shinzo Abe, who is set to become prime minister on Wednesday, has renewed pressure on the BOJ to adopt a higher and more explicit inflation target.
Abe also plans to revise a law guaranteeing the BOJ's independence if his demand for a binding 2 percent inflation target - double its current goal - is not met in January.
He said he will pick someone who agrees with his views on the need for bolder monetary easing to succeed BOJ Governor Masaaki Shirakawa when his term expires in April next year.
While the spectre of a radical change of BOJ policy is likely to keep the yen under pressure, technical analysts said the dollar must clearly overcome its 200-week moving average around 84.95 yen, to sustain further gains.
"While we have no reason to buy yen now, there's no denying the yen's fall has been driven by speculators and expectations," said Makoto Noji, senior strategist at SMBC Nikko Securities.
"But at the end of the day, whatever the inflation target the BOJ has, there's not so much the BOJ can do, other than buying government debts for more easing. So at some point, traders will take money off this (yen-selling) trade," he added.
The dollar was also broadly supported against riskier currencies as U.S. politicians struggle to reach an agreement to avoid a $6 billion "fiscal cliff of spending cuts and tax rises starting in January.
Some U.S. lawmakers voiced concern on Sunday that the country would go over the cliff, possibly sending the world's biggest economy into recession, although many market players have been hoping for an 11th-hour deal ahead of the year-end deadline.
The dollar index stood at 79.659 , near its 10-day high of 79.71 hit on Monday.
As the dollar gains, the euro traded at $1.3181, down from its 7 1/2-month high of $1.33085 hit last week, but little changed on the day.
The Australian dollar also stayed near one-month low hit on Monday, fetching $1.0367, just above Monday's low of $1.0357.
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