(Reuters) - The yen fell to its lowest in more than a year and a half versus the dollar on Monday after a landslide election victory for Japan's Liberal Democratic Party, which is committed to aggressive monetary easing.

The LDP's victory will propel ex-Prime Minister Shinzo Abe - who has called for "unlimited" monetary easing, an increase in the inflation target and big spending on public works to rescue the economy - back to power.

Analysts expect the prospect of ultra-loose monetary policy to cause the yen to lose further ground in coming weeks, depending on the pace of policy change. However, the fact that bets against the yen are already hefty could limit its losses.

The dollar was last up 0.5 percent on the day at 83.91 yen, having earlier hit 84.48 yen, its strongest since April 2011. This left it with the potential to target the 200-week moving average at 85.008 yen.

The extent of the LDP's victory will give the new government a greater chance of pushing through policies. The LDP and its ally the New Komeito party secured the two-thirds majority needed to overrule parliament's upper house.

"The fact that the LDP secured a two-thirds majority gives them a strong mandate and will lead to significant policy changes," said Ian Stannard, head of European currency strategy at Morgan Stanley.

"The yen weakening trend will be sustainable and dollar/yen will move higher while euro/yen also has the potential to move sharply higher." He said Morgan Stanley forecasts the dollar to rise to 90-92 yen by the end of 2013, while the euro could rise to 113 yen by the end of this year.

The euro jumped to around 111.30 yen, its highest since late March. It was last up 0.6 percent at 110.50 yen.

The next test is this year's high of 111.43 yen, with support said to lie at Friday's session high of 109.98 yen.

The Bank of Japan is scheduled to meet on Wednesday and Thursday. The BOJ will most likely increase its asset-buying and lending program, currently at 91 trillion yen, by another 5-10 trillion yen, sources have said.

Abe told a news conference on Monday that Japan needs a sizable supplementary budget to beat deflation, given the country's output gap.

The euro's gains against the yen also helped it against the dollar. It was last steady at $1.3163, having hit $1.3187 overnight in Asia, its highest in seven-and-a-half months.

Analysts said the dollar may be hampered by any signs of troubles in U.S. talks to avert a "fiscal cliff" of $600 billion worth of tax increases and spending cuts due next month.

SHORT YEN BETS

Although analysts believe the yen will continue to fall following the LDP's victory, its falls could be limited in the short term as investors cut back short positions.

Data from the Commodity Futures Trading Commission on Friday showed speculators' bets against the yen were at their highest in over five years. Investors had already turned bearish on the yen in anticipation of an LDP victory.

Some analysts also warned the yen may be poised for a rebound as Abe's actions could fall short of his tough talk, at least in the short term, while the BOJ's easing steps are expected to trail those of the U.S. Federal Reserve for now.

Still, strategists at Barclays recommended maintaining long positions in three-month dollar/yen call options, due to the stronger mandate for the BOJ to target higher inflation.

"Our estimates suggest a 10 percent multilateral nominal (yen) depreciation would be needed to get a one-off inflation boost of just 1.5 percent," they said in a note to clients.

The CFTC data also showed currency speculators turned bearish on the U.S. dollar for the first time since late October. The dollar index .DXY was slightly higher at 79.616.

(Additional reporting by Lisa Twaronite in Tokyo and Ian Chua in Sydney; Editing by Catherine Evans)

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