By Richard Leong
NEW YORK (Reuters) - The dollar touched a three-month high against the yen on Monday, as investors bet the overwhelming election victory for Japan's ruling party would mean a continuation of "Abenomics," the ultra-easy policies that have kept downward pressure on the yen.
The greenback traded close to a 2-1/2 week high against a basket of six major currencies <.DXY>. Traders have been speculating that the next head of the Federal Reserve could take a more hawkish stance on monetary policy.
Renewed expectations of federal tax cuts have also supported the greenback and stoked a rise in U.S. bond yields, with two-year yields reaching a near nine-year peak at 1.589 percent .
"The common trait is higher U.S. yields. You have the whole Fed chair debate and the fiscal situation," said Alan Ruskin, global co-head of FX strategy at Deutsche Bank in New York.
U.S. President Donald Trump said on Monday he is "very, very close" to making his decision on who should chair the Fed and was considering at least three people: Federal Reserve Governor Jerome Powell, Stanford University economist John Taylor and current Fed Chair Janet Yellen. [nL2N1MY0YO]
Speculators pared net bearish bets on the dollar to their lowest level in more than a month, Commodity Futures Trading Commission data showed on Friday.
The dollar index <.DXY> was last up 0.22 percent at 93.910, below a session peak of 94.017.
Japanese Prime Minister Shinzo Abe's ruling Liberal Democratic Party-led coalition kept its two-thirds "super majority" in the lower house with a total of 313 seats in its election win on Sunday.
Abe's victory eased fears that the economic steps implemented under his leadership, including an expansive asset-purchase program by the Bank of Japan, would be disrupted and halt the yen's depreciation against the dollar.
The dollar gained as much as half a percent to 114.10 yen on the EBS trading platform, its strongest since July 11. It was last up 0.1 percent at 113.69 yen.
The euro fell 0.4 percent to $1.17420 , holding below a 2-1/2-year peak of $1.2092 reached on Sept. 8, on anxiety about Madrid's handling of civil unrest in Catalonia following a referendum on the region's independence on Oct. 1.
The single currency was on its back foot ahead of a European Central Bank policy meeting on Thursday. Traders were betting on a more hawkish stance from the ECB offset by hints it is not in a rush to tighten policy.
(Additional reporting by Jemima Kelly and Polina Ivanova in London; Shinichi Saoshiro in Tokyo; Editing by Catherine Evans and Meredith Mazzilli)