The LDP surged back to power in Sunday's election, giving ex-Prime Minister Shinzo Abe another chance to take the helm. The LDP and its ally the New Komeito party secured the two thirds majority needed to overrule parliament's upper house, meaning the new government has a greater chance of pushing though its policies.

"What remains to be seen is what policies will come next. There is no mistake that Abe had clearly spoken out for steps against deflation," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.

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

The dollar rose as far as 84.48 yen, reaching its highest since April 2011, from around 83.50 yen late in New York on Friday. The dollar last bought 84.04 yen, up about 0.7 percent, as profit-taking pared gains.

The euro jumped to around 111.30 yen from 109.81 yen, and last stood at 110.53 yen, up about 0.6 percent. 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 higher-yielding Australian dollar climbed above 89.00 yen for the first time since May 2011, peaking at 89.01 yen before falling back to 88.50 yen.

Abe, who quit as premier in 2007 citing ill health, has called for "unlimited" monetary easing and big spending on public works to rescue the economy from its fourth recession since 2000.

The Bank of Japan is scheduled to meet on Wednesday and Thursday, and even before the election, most analysts expected the central bank to ease policy further. The BOJ will most likely increase its asset-buying and lending programme, currently at 91 trillion yen, by another 5-10 trillion yen, sources have said.

Center>Copyright Reuters, 2012