* Yen falls vs dollar, euro, traders cite month-end selling
* Expectations of BOJ easing add to demand to sell yen
* Euro trade seen choppy on U.S. fiscal cliff uncertainty
By Nia Williams
LONDON, Nov 30 (Reuters) - The yen hit a seven-month low against the euro and fell against the dollar on Friday on reported month-end selling by Japanese firms and speculation monetary policy could be aggressively eased.
The euro also rose against the dollar, helped by a deal agreed earlier in the week to release aid funds to Greece.
Bets that the Bank of Japan will ease policy if the opposition Liberal Democratic Party wins an election on Dec. 16 have weighed on the yen, even though LDP leader has recently toned down demands for looser policy.
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.
“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.
“Some people have become disillusioned recently because Abe has toned down his rhetoric and the market believes there are lots of yen shorts out there. But I think these shorts are relatively small in size and many Western investors are still bearish on the yen.”
The euro rose around 1 percent on the day to 107.63 yen, its highest since late April. Market players cited month-end demand for the euro from Japanese importers.
The dollar climbed 0.7 percent to 82.69 yen, close to a near eight-month high of 82.84 yen hit last week, and up more than 3 percent on the month.
Concerns about the political impasse between Democrats and Republicans in Washington over how to avert the “fiscal cliff” have slowed dollar gains against the yen and also resulted in choppy trading in the euro against the dollar.
The euro was last up 0.2 percent at $1.3007. Traders citing supporting bids at $1.30 and offers around $1.3040-50 that could cap gains.
Investors tend to sell the euro and buy the highly liquid dollar on headlines suggesting 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.
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.
“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, as well as relief after Greece’s international lenders agreed on an aid deal for Athens.
The 10-year Italian bond yield was steady on Friday after hitting a two-year low on Thursday.
An unexpected improvement in the euro zone’s business mood published on Thursday also bolstered the euro, although many market players said the euro zone economy, already in recession, will continue to struggle.