The LDP surged back to power in a landslide election victory on Sunday, giving Japan's next prime minister, Shinzo Abe, a chance to implement a radical economic strategy calling for "unlimited" monetary easing and huge public works spending.

The triumph was seen as piling pressure on the Bank of Japan to ease further at its next policy meeting, which ends on Thursday, setting the stage for an even bigger fall in the yen.

"I wouldn't be surprised if we were talking about, in March or April time, a move that has taken us up into the mid-nineties (for dollar/yen)," said Simon Derrick, chief currency strategist at Bank of New York Mellon.

"I think when it moves it's quick and I think it's going to happen."

The dollar hit a high of 84.48 yen after the vote result became clear, its strongest level against the Japanese currency since April 2011. The dollar was last up 0.5 percent on the day at 83.91 yen.

The yen's fall also boosted the euro, which jumped to around 111.30 yen to be near its year's high of 111.43 yen, before settling to trade at 110.50 yen.

Japan's Nikkei stock index .N225 benefited as well from the vote to close at an 8-1/2-month high on expectations the weaker yen will boost exports by Japanese firms.

FISCAL FEARS

Meanwhile investors were also focused on the fast approaching year-end deadline to avoid the imposition of steep tax hikes and spending cuts in the U.S., known as the "fiscal cliff", which would send the giant economy back into recession.

A new proposal for tax hikes on incomes over $1 million a year from U.S. Republican House Speaker John Boehner on Sunday was seen as a step forward but it still remains some way from the position of President Barack Obama.

Anxiety over the unresolved differences between the two sides is holding back what has been a big rally in equity and commodity markets spurred by the easier monetary policies of the world's major central banks.

"Global stock prices have almost doubled since March 2009 with total return indices in the U.S., UK, Germany and some emerging markets at or near all time highs," said Trevor Greet ham, director of asset allocation at Fidelity.

The MSCI world equity index .MIWD00000PUS was little changed overall at 336.27 points but over the last month has added about six percent for a year to date gain of 12.3 percent.

Though after the gains made in recent weeks on the brightening outlook the FTSE Eurofirst 300 index .FTEU3 was down 0.25 percent on Monday following on from 0.5 percent decline in Asia equity markets outside Japan.

London's FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI were lower by between 0.2 percent and 0.6 percent, although a 0.1 percent gain in U.S. stock futures hinted at a firmer Wall Street open. .L.EU.N

"I think we're heading for a very flattish day with thin volumes. In the week before Christmas you see that trading volumes evaporate quite substantially," Gerhard Schwarz, strategist at Baader Bank, said.

In oil markets traders were drawing support from a brighter economic outlook for top energy consumer China, although the market remained skittish because of the impact a failure to reach a budget deal in the U.S. would have on future demand.

"We're just seeing a bit of consolidation after that uptick in China data improved sentiment," said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.

U.S. crude was unchanged at $86.73 a barrel while Brent dipped 0.15 percent to $108.04.

(Additional reporting by Tricia Wright; editing by Jeremy Gaunt and Anna Willard)

• A Permanent Economic Emergency