The yen eased on Monday after election results showed political uncertainty lay ahead for Japan, but the move was likely to be short-lived with attention turning the U.S. earnings season as a gauge of risk appetite.

Japan's ruling coalition, led by Prime Minister Naoto Kan's Democratic Party of Japan, lost its upper house majority over the weekend, putting Kan's policies to check the country's massive debt at risk.

Although the DPJ has a dominant grip on the more powerful lower house, the election outcome makes policy stalemate more likely.

Market players said the election outcome helped trigger yen-selling, including likely long liquidation in the yen. One trader cited dollar buying against the yen by hedge funds.

Such flows, together with Japanese importer demand for the dollar, helped push the dollar higher against the yen, market players said.

But traders said focal points in the near-term were the start of the U.S. earnings season this week and the results of stress test at European banks due later in July, adding that yen-selling pressure stemming solely from the upper house election result was likely to be limited in scope and duration.

I think we may see a move toward 90 yen to the dollar and that may be it, said a trader for a Japanese bank, adding that long liquidation in the yen seemed to be the main reason behind the yen's dip on Monday.

The dollar rose 0.5 percent against the yen to 89.07 yen JPY=, pulling away from a seven-month low of 86.96 yen hit on trading platform EBS in early July.

On daily Ichimoku charts, the dollar faces resistance near 89.55 yen, roughly where the kijun sen now lies.

Overall, the Tokyo market reaction to the election was subdued, with the benchmark Nikkei average little changed on the day .N225, and 10-year Japanese government bond futures eking out a small gain 2JGBv1.

The latest U.S. Commodity Futures Trading Commission (CFTC) data showed that currency speculators increased their long positions in the yen to 37,926 contracts in the week that ended July 6, up from 27,427 contracts in the previous period. [IMM/FX]

The euro edged up 0.2 percent against the yen to 112.23 yen EURJPY=R.

Against the dollar, the euro fell 0.3 percent to $1.2598 EUR=. Resistance is seen near $1.2715/20, the trendline from the December high.

The euro had touched a two-month high of $1.2723 on Friday, supported by strong German data, some clarity on European bank stress tests and a turnaround in appetite towards riskier assets.

Indeed, the latest CFTC data showed speculators had decreased bets against the euro to 38,909 contracts, from 73,670 contracts.

Traders said they will eye how a Greek debt auction goes this week for more direction on the euro. The debt-laden country plans to auction six-month treasury bills on July 13.

The dollar index .DXY rose 0.3 percent to 84.225, pulling away from a two-month low of 83.622 hit on Friday. The greenback has been under pressure since early last week, hurt by growing worries about a slowdown in the U.S and easing concerns about the euro zone.

From their June 8 peak, dollar net longs have tumbled by 80 percent, wrote David Watt, senior currency strategist at RBC Capital.

Along the way, the dollar index has dropped from over 88 to below 85. Much of the most recent drop seems due to a successful Spanish bond auction, though yield spreads are working against the dollar and are an underlying factor at play too.

The U.S. earnings season begins with Alcoa Inc (AA.N) after the closing bell on Monday. Analysts are expecting overall second-quarter earnings to grow by 27 percent, according to Thomson Reuters data. That is up from the 22.4 percent that analysts were anticipating at the beginning of the year. [ID:nN08195712]. (Additional reporting by Anirban Nag in Sydney; Charlotte Cooper in Tokyo; Editing by Joseph Radford)

Safety Japan