G.O.P. Yields on Fiscal Point, Clearing Way for More Talks

In seesaw negotiations, the two sides got closer on the central issue of how to define the wealthy taxpayers who would be required to pay more once the Bush-era tax cuts expire.

But that progress was overshadowed by gamesmanship. After Republicans demanded that any deal must include a new way of calculating inflation that would mean smaller increases in payments to beneficiaries of programs like Social Security, Democrats halted the negotiations for much of the day.

The Republican leader in the Senate, Mitch McConnell, made an emergency call to Mr. Biden in hopes of restarting negotiations, and the White House sent the president’s chief legislative negotiator to the Capitol to meet with Senate Democrats. Soon after, Republicans withdrew their demand and discussions resumed, but little progress was made.

Lawmakers will be back on Monday. Senator Harry Reid of Nevada, the majority leader, said the Senate would return at 11 a.m. Monday and then left the Capitol just after 6 p.m. “Talk to Joe Biden and McConnell,” Mr. Reid told reporters when asked if negotiations were continuing.

In the balance are more than a half-trillion dollars in tax increases on virtually every working American and across-the-board spending cuts that are scheduled to begin Tuesday. Taken together, they threaten to push the economy back into recession.

“It looks awful,” said Senator Richard J. Durbin of Illinois, the second-ranking Democrat. “I’m sure the American people are saying, with so much at stake why are they waiting so late to get this done?”

Senator Lindsey Graham, Republican of South Carolina, who had said early Sunday that he thought a deal was within reach, said later on his Twitter feed, “I think we’re going over the cliff.”

Weeks of negotiations between President Obama and Speaker John A. Boehner inched toward a deal to avert the so-called fiscal cliff, while locking in trillions of dollars in deficit reduction over 10 years and starting an effort to overhaul the tax code and entitlement programs like Medicare. But earlier this month, Mr. Boehner walked away from those talks.

Instead he tried to reach a much more modest deal to avoid a fiscal crisis by extending the expiring tax cuts for incomes under $1 million. When Mr. Boehner’s own Republican members revolted, he ceded negotiations to the Senate. But compromise has proved equally elusive in that chamber.

Absent a last-minute deal, Mr. Reid is expected to move on Monday to bring to a vote a stopgap measure pushed by Mr. Obama, which would retain lower tax rates for incomes below $250,000 and extend unemployment benefits. But it was not clear that would even get a vote. The objection of a single senator on Monday would run out the clock on the 112th Congress before a final tally could be taken.

Mr. Obama appeared on the NBC program “Meet the Press” on Sunday and implored Congress to act. “We have been talking to the Republicans ever since the election was over,” Mr. Obama said in the interview. “They have had trouble saying yes to a number of repeated offers.”

He added, “Now the pressure’s on Congress to produce.”

After the talks broke down over the inflation demand, Senate Republicans emerged from a closed-door meeting on Sunday afternoon to declare the issue off the table for now. Senator John McCain, Republican of Arizona, said that holding the line against raising taxes on high-income households while fighting for cuts to Social Security was “not a winning hand.”

Then they mustered a new talking point, saying Democrats want to raise taxes only to spend more money. Their new objection: Democrats are seeking a one- to two-year “pause” for across-the-board spending cuts and an extension of expired unemployment benefits for two million people.

“We raise taxes, and we spend more?” asked Senator Kay Bailey Hutchison, Republican of Texas. “It’s business as usual.”

For their part, Democrats beat back the inflation proposal, and then promptly proclaimed themselves incensed that Republicans would not soften their position on a generous level of taxation on inherited estates and an insistence that a final deal permanently prevent the alternative minimum tax, a parallel tax system meant to ensure that wealthy people pay more, from expanding to affect more of the middle class.

Democrats were also demanding that across-the-board cuts to military and domestic programs — known as the “sequester” — at least be delayed.

Robert Pear and John M. Broder contributed reporting.

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Senate Leaders Racing to Beat Fiscal Deadline

As part of the last-minute negotiations, the lawmakers were haggling over unemployment benefits, cuts in Medicare payments to doctors, taxes on large inheritances and how to limit the impact of the alternative minimum tax, a parallel income tax system that is intended to ensure the rich pay a fair share but that is increasingly encroaching on the middle class.

President Obama said that if talks between the Senate leaders broke down, he wanted the Senate to schedule an up-or-down vote on a narrower measure that would extend only the middle-class tax breaks and unemployment benefits. The Senate majority leader, Harry Reid of Nevada, said he would schedule such a vote on Monday absent a deal.

If Congress is unable to act before the new year, Washington will effectively usher in a series of automatic tax increases and a program of drastic spending cuts that economists say could pitch the country back into recession.

The president and lawmakers put those spending cuts in place this year as draconian incentives that would force them to confront the nation’s growing debt. Now, lawmakers are trying to keep them from happening, though it seemed most likely on Saturday that the cuts, known as sequestration, would be left for the next Congress, to be sworn in this week.

“We just can’t afford a politically self-inflicted wound to our economy,” Mr. Obama said Saturday in his weekly address. “The housing market is healing, but that could stall if folks are seeing smaller paychecks. The unemployment rate is the lowest it’s been since 2008, but already families and businesses are starting to hold back because of the dysfunction they see in Washington.”

The fear of another painful economic slowdown appears to have accelerated deal-making on Capitol Hill with just 48 hours left before the so-called fiscal cliff arrives. Weeks of public sniping between Mr. Reid, the Democratic leader, and Senator Mitch McConnell of Kentucky, the Republican leader, ebbed on Friday evening with pledges of cooperation and optimism from both.

On Saturday, though, that sentiment was put to the test as 98 senators waited for word whether their leaders had come up with a proposal that might pass muster with members of both parties. The first votes in the Senate, if needed, are scheduled for Sunday afternoon.

“It’s a little like playing Russian roulette with the economy,” said Senator Mark Warner, Democrat of Virginia. “The consequences could be enormous.”

Members of Congress were mostly absent from the Capitol on Saturday, after two days of Senate votes on other matters and a day before both chambers were to reconvene. However, senior aides were working on proposals in their offices or at their homes.

Speaker John A. Boehner stopped by the Capitol briefly to see his chief of staff on Saturday afternoon. Mr. McConnell spent much of the day in his office.

Aides to Mr. Reid were expecting to receive offers from Mr. McConnell’s staff, but no progress was reported by midday. Even if the talks took a positive turn, Senate aides said, no announcement was expected before the leaders briefed their caucuses on Sunday.

The chief sticking point among lawmakers and the president continued to be how to set tax rates for the next decade and beyond. With the Bush-era tax cuts expiring, Mr. Obama and Democrats have said they want tax rates to rise on income over $250,000 a year, while Republicans want a higher threshold, perhaps at $400,000.

Democrats and Republicans are also divided on the tax on inherited estates, which currently hits inheritances over $5 million at 35 percent. On Jan. 1, it is scheduled to rise to 55 percent beginning with inheritances exceeding $1 million.

The political drama in Washington over the weekend was given greater urgency by the fear that the economic gains of the past two years could be lost if no deal is reached.

Some of the consequences of Congressional inaction would be felt almost at once on Tuesday, in employee paychecks, doctors’ offices and financial markets. Analysts said the effect would be cumulative, building over time.

An early barometer would probably be the financial markets, where skittish investors, as they have during previous Congressional cliffhangers, could send the stock market lower on fears of another prolonged period of economic distress.

In 2011, the political battles over whether to raise the nation’s borrowing limit prompted Standard & Poor’s to downgrade its rating of American debt, suggesting a higher risk of default. The Dow Jones industrial average fell 635 points in a volatile day of trading after the downgrade.

This month, traders have again nervously watched the political maneuvering in Washington, and the markets have jumped or dropped at tidbits of news from the negotiations. Two weeks ago, Ben S. Bernanke, the chairman of the Federal Reserve Board, predicted that if lawmakers failed to reach a deal, “the economy will, I think, go off the cliff.”

Immediately — regardless of whether a deal is reached — every working American’s taxes will go up because neither party is fighting to extend a Social Security payroll tax cut that has been in place for two years.

Robert Pear and Jennifer Steinhauer contributed reporting.

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Congressional Memo: Fiscal Crisis Impasse Long in the Making

From the first fight over a short-term spending agreement to keep the government open in early 2011 to the later tangle over the debt ceiling to the failure of last year’s special budget committee and the resulting automatic spending cuts that now loom along with tax increases, the so-called fiscal cliff was built, slab by partisan slab, to where it now threatens the nation’s finances.

“Something has gone terribly wrong,” said Senator Joe Manchin III, Democrat of West Virginia, “when the biggest threat to our American economy is the American Congress.”

Years of increased spending on everything from wars to expanded entitlement programs — combined with protracted, stubborn unemployment and a nation of workers whose earning power and home values have plummeted in recent years — have persuaded lawmakers in both parties that fiscal policy is the most pressing domestic concern.

But a fundamental ideological chasm between the majority of lawmakers and an empowered group of Congressional Republicans — fueled by some Tea Party victories in both chambers in 2010 — has made it more difficult than ever to reach fiscal and budgetary compromises.

Each fight has left Democrats and Republicans both more distrustful and wary of working together, each in search of a voter mandate to push its vision to the fore. In some ways, that dynamic has come full circle.

In 2011, right after their big midterm victory, Republicans were able to push Democrats out of their comfort zone on spending, using short-term measures to keep the government open and the debt ceiling as weapons against the Obama administration. After the 2012 election, Democrats are using that same strategy to tear Republicans from their orthodoxy on taxes, and the Republicans’ pain is evident.

“Hats off to the president — he won,” Senator Lindsey Graham, Republican of South Carolina, said ruefully on Sunday.

As a result, members of both parties have become increasingly addicted to short-term solutions to long-term problems, cobbling together two- and three-month bills and short-term extensions to fight over again and again until the string has run out on many major pressing issues.

Also, a change in the way this Congress does business — the elimination of home-state earmarks that once greased so many Congressional deals — and the escalating use of the Senate filibuster to prevent debate on even routine legislation have further hamstrung lawmakers in their efforts to get anything done.

With less than 48 hours to go before substantial tax hikes and large spending cuts affected nearly every aspect of American life, the 112th Congress was lurching toward its operatic end in a state of legislative dysfunction, ideological asymmetry and borderline chaos.

“This is one of the lowest points of the U.S. Senate,” Senator Barbara A. Mikulski, Democrat of Maryland, remarked as she ticked off what she said were other nadirs in a long Senate career. “This is what we’re doing to ourselves.”

A Sunday session on the eve of New Year’s Eve was marked by confusion, acrimony and a fair amount of sitting around waiting for things that never happened.

On the Senate side, Senator Harry Reid of Nevada, the majority leader, took to the floor at midday to proclaim the talks all but finished, shocking even some Democrats. Later he said, well, maybe they were not. Mr. Reid said he had made a counteroffer to the most recent one offered by his Republican counterpart, Senator Mitch McConnell of Kentucky. Then his aides said he had been sort of joking.

Mr. McConnell, seeking a lifeline, or at least perhaps a sympathetic ear, turned to Vice President Joseph R. Biden Jr., his old Senate friend, almost like one brother calling another to ask how to deal with the awful family fight brewing back home. Mr. Biden and Mr. McConnell have worked together for decades in the Senate and two years ago were able to cut the last major tax deal.

At some point within the pandemonium, members of Congress started talking, almost inexplicably, about the stalled farm bill. It is one of the many measures — once relatively noncontroversial and typically passed with bipartisan glee — that have expired and that Congress has been unable to renew, and the sudden attention to it seemed incongruous given the crisis atmosphere.

Bending to the wishes of Speaker John A. Boehner, House members returned to the Capitol on Sunday night, ostensibly to hear about a Senate deal. But since one had not materialized, they instead contented themselves by voting on subjects like the dignified burial of veterans, and by snacking on pizza.

Representative Bill Huizenga of Michigan, a freshman Republican who has enjoyed the highs of his party’s hard-fought victories and remains in defiance of Democrats even as that dominance has crumbled, found himself on Sunday in a place he has come to know well — the middle of an impasse.

“I feel like I’m trapped in ‘Groundhog Day,’ ” Mr. Huizenga said.

And in a way he was, as he and his colleagues found themselves yet again on the brink of a fiscal crisis, this one magnified by all the others before it.

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Summoned Back to Work, Senators Chafe at Inaction Over Fiscal Deal

But for once, those lawmakers were fully united, if only around their sadness and frustration at being stuck in Washington in a holiday week, peering over the edge of the fiscal abyss.

“This is no way to run things,” complained Senator Rand Paul, Republican of Kentucky, who checked off the various backyard sports he longed to be playing with his children: football, soccer and some golf.

Members of the Senate trudged back to the Capitol ostensibly to work out a deal with the White House to avoid large tax increases and spending cuts set to take effect in just a few days. With the possibility of New Year’s Eve floor festivities looming, Congress could find itself voting on the final day of the year for the first time in more than four decades.

Senator Harry Reid of Nevada, the majority leader, was eager to demonstrate that the Senate was ready to move on any idea presented by the White House or the House even as things seemed to be careening toward failure on Thursday.

“Members of the House of Representatives are out watching movies and watching their kids play soccer and basketball and doing all kinds of things,” said Mr. Reid, in a ferocious floor attack on the House that he returned to periodically throughout the day Thursday, like an angry father-in-law revisiting a grudge he’s been nursing all year. “They should be here.”

Not to be outdone, Speaker John A. Boehner, who failed last week to cobble together enough votes for his own bill, ordered House members to return on Sunday. Saying it was the Senate’s turn to come up with an idea, he told fellow Republicans on a conference call, “The House will take this action on whatever the Senate can pass, but the Senate must act.”

Absent a solution — or even a pathway to a bill — senators whiled away the hours without any agreement, debating and voting on amendments to a surveillance measure, pondering hurricane aid, and swearing in a new senator from Hawaii. Retiring senators, who had anticipated that their services would no longer be needed, worked in offices in varying states of disassembly, their staffs pecking out e-mails on iPads because their computers had been carted away.

A meeting at the White House between President Obama and Congressional leaders scheduled for Friday offered either the promise that a resolution of the fiscal debacle was in view or a portentous sign that each side was doing all it could to make sure that it could escape blame for a potential fiscal meltdown. No one was quite sure which.

Amid the absurdity of an urgent, nonurgent holiday session, there was the odd hum of normalcy. Senators fulminated about espionage for hours on the Senate floor as they debated the Foreign Intelligence Surveillance Act. Congressional aides wore their workday best as they sped through hallways, clutching their phones. Taco Thursday continued as it does each week in the small carryout restaurant where staff members collect lunches to be eaten at desks. Mr. Paul, as per usual, tussled with the leadership over one of his amendments.

Mostly, people just looked mad. Senator Charles E. Schumer, Democrat of New York, his tie slightly askew, looked as gloomy as the clouds hovering over the Capitol dome. “I didn’t realize how much I didn’t want to be here until I got here,” said Mr. Schumer, who had taken the red eye from San Francisco, where he had arrived only days earlier to visit his daughter.

A single senator was seen smiling: Brian Schatz, who was appointed on Wednesday by the governor of Hawaii to fill the term of the late Senator Daniel K. Inouye, held the arm of his fellow Hawaii Democrat, Senator Daniel K. Akaka, as he walked across the Senate floor to meet Vice President Joseph R. Biden Jr., who administered the oath to the new senator. His duties complete, Mr. Biden was immediately descended upon by reporters eager for a morsel of news; he did not oblige.

The Congressional impasse over how to avoid tax increases and spending cuts has left this entire city gripping Starbucks cups procured from Georgetown to Capitol Hill, bearing the message “come together,” to wait in low-grade misery for the next chapter in the drama. This would be Sunday night, when House members arrive, just ahead of New Year’s Eve at the summons of their leaders, who decided Thursday that they could not afford to be home killing time while Senate Democratic leaders took to C-Span to take shots at the absent House.

As the nation awaited news — any news! — about what would happen to the nation’s fiscal health, Dr. Ruth Westheimer, the sex therapist, volunteered on Twitter that lawmakers who could not compromise “probably aren’t good lovers.” That was around midday.

Many retiring senators’ offices looked empty and gloomy, and boxes full of years of archives piled up around the Hart Senate Office Building. The office of Mr. Inouye was jam-packed with floral arrangements, and smelled of lilies and chai tea. On the door of the office of retiring Senator Jeff Bingaman, Democrat of New Mexico, was a sign imploring visitors to rap with a coin or key “so the sound will carry,” and retiring Senator Ben Nelson, Democrat of Nebraska’s, office was absent even his name plate; a flag for his home state lingered.

The House and Senate have held numerous pro forma sessions during the week between Christmas and New Year over the years, and in 1995 during a major budget battle. But the last time they held roll call votes that week, before Thursday, was during the second session of the 91st Congress, in 1970, amid a large spending fight and a filibuster over financing for a supersonic transport plane.

Not everyone decided to make the trip Thursday. About 10 senators missed a series of votes, including Barbara Boxer, Democrat of California, and Jim DeMint, Republican of South Carolina, who has retired.

Kitty Bennett contributed research.

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Obama Returning to Capital to Seek Fiscal Deal

A White House official said on Tuesday that the president could depart as early as Wednesday.

Meanwhile, both chambers of Congress will come back from their holiday hiatus on Thursday and return to work. While there are growing signs that some members of both parties are prepared to accept a deal that raises taxes on people at the highest income levels, there is considerable distance between Republicans and Democrats and no guarantee that an agreement could pass.

The president and Congress left Washington late last week after House Republicans rejected a plan that would have left tax rates in place for all but those with incomes above $1 million.

Mr. Obama has since called for a less ambitious approach to avoid the so-called fiscal cliff on Jan. 1, when a series of automatic budget cuts and tax increases will go into effect if Congress and the White House cannot come up with an alternative course of action.

The White House has been seeking a resolution through talks with Senate Democrats, who control the chamber and have gained the tacit support of some of their Republican colleagues.

But the Senate Republican leader, Mitch McConnell of Kentucky, has given no indication that his members would not seek to block a deal that includes tax increases.

The main obstacle remains the Republican-led House, where a bloc of conservatives has ruled out any tax increases whatsoever.

Over the last four days, Mr. Obama has had a placid and uneventful vacation of golfing, hiking and exercising on a military base here on the island of Oahu, where he was raised and usually spends the holidays.

He had a quiet Christmas Day with his family. He spent most of the morning and early afternoon at the beach house he is renting on the island, except for an hour and a half he spent at the gym.

It was likely to be Mr. Obama’s last day of solitude for a while. With a fiscal deal still out of reach, the president can ill afford the public relations problems that would arise from being on vacation while the country heads uncertainly toward a deadline that could have a serious impact on the financial markets and the economy.

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Fiscal Cutoff Gradually Morphs Into a Horizon

Until late last week, most observers had expected the president and Congressional Republicans to come up with at least a short-term compromise before the year-end deadline. But the failure of Speaker John A. Boehner to win support for tax increases on the wealthiest Americans from fellow House Republicans has forced many economic observers to reconsider what might happen if political leaders remain deadlocked into 2013. Wall Street is still betting on a quick deal, but that confidence is misplaced, said Julia Coronado, chief North American economist at BNP Paribas. “Markets have been incredibly complacent about this,” she said. If a compromise cannot be found by Jan. 1, she said, “the markets will take that hard.” Some hits — like a two percentage point increase in payroll taxes and the end of unemployment benefits for more than two million jobless Americans — would be felt right away. But other effects, like tens of billions in automatic spending cuts, to include both military and other programs, would be spread out between now and the end of the 2013 fiscal year in September. These could quickly be reversed if a compromise is found. Similarly, the expiration of Bush-era tax cuts on Jan. 1 would not have a major impact on consumers if Congress quickly agreed to extend them for all but the wealthiest Americans in early 2013, as is widely expected. Other probable changes, like a jump in taxes on capital gains and dividends, would most likely be felt over a broader period rather than as an immediate blow to the economy. In the meantime, more observers are contemplating what the impact will be if Washington ignores the year-end deadline and waits until January or February to act. “It’s still possible they will work something out by the end of the year, but the probability seems reasonably high that we may go into January with no agreement,” said Dean Maki, chief United States economist at Barclays Capital. “But the longer this goes on, the more nervous I get about first-quarter growth. If negotiations were to linger into March, then the first quarter could be much weaker.” If the impasse lasted even longer and the full force of more than $500 billion in tax increases and spending cuts hit the economy, the Congressional Budget Office predicts the country would slip into recession in the first half of 2013, with unemployment rising to 9.1 percent by the fourth quarter of 2013. But for all the pessimism recently, most observers still think a compromise will be reached, even if it takes a few more weeks. Negotiations are set to resume in the coming days, following a break for Christmas, although hopes for a so-called grand bargain have faded. Instead, President Obama is pushing for a scaled-back plan that would extend the Bush-era tax cuts on incomes below $250,000, while suspending the automatic spending cuts and extending unemployment benefits. Michelle Meyer, senior United States economist at Bank of America Merrill Lynch, said there is a 40 percent chance of what she calls a “bungee-jump over the fiscal cliff,” with Congress failing to act until after Jan. 1 but eventually averting the full package of tax increases and spending cuts by mid-January. If that were to happen, she predicts a steep sell-off on Wall Street, which would quickly force political leaders to compromise. Over all, Ms. Meyer estimates that the economy will grow by just 1 percent in the first quarter of 2013, well below the 3.1 percent pace recorded in the third quarter of 2012. What’s worrisome, she added, is that consumer anxiety about the fiscal impasse has begun to mount, catching up with business leaders who have been warning of economic danger since summer. “What’s been missing in this recovery has been confidence,” she said. “We’d see a healthy recovery if it weren’t for this uncertainty and the potential shock from Washington.” Indeed, the economy has been showing signs of life recently. Unemployment in November sank to 7.7 percent, a four-year low. Consumer spending has been picking up, and the housing market has continued to recover in many parts of the country. Overseas worries like slowing growth in China and recession in Europe have also faded. Those trends have encouraged some observers, like Steve Blitz, chief economist at ITG Investment Research. He estimates that the economy will grow by nearly 2.5 percent in the first quarter if Washington comes up with even a modest compromise. In the absence of a deal, the pace of growth would be more like 1 percent, he said. “I don’t think that not having a deal going into the new year is all that critical,” Mr. Blitz said. “It doesn’t mean you will immediately go into a recession.”
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Economic Scene: Say Goodbye to the Government, Under Either Fiscal Plan

The contemplated cuts in discretionary spending would make the federal government little more than a heavily armed pension plan with a health insurer on the side.

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Asian shares inch higher on "fiscal cliff" hopes

TOKYO (Reuters) - Asian shares crept higher on Tuesday, tracking the overnight gains in U.S. stocks, as fresh signs of compromise maintained a new optimism that the U.S. "fiscal cliff" budget tussle could be settled before tax hikes and spending cuts begin to bite early next year.

Oil and copper also firmed on the prospect of progress in the U.S. budget talks, but expectations of more monetary easing in Japan kept the yen soft.

President Barack Obama is seeking higher tax revenues which include increased rates on the wealthy while he is willing to cut some spending by changing the way cost of living adjustments are made to Social Security retirement benefits and other programs.

Obama's offer shows his willingness to give way on an item that some of his supporters had sought to protect, and may help advance negotiations with top Republican John Boehner to avert the fiscal cliff before the end-year deadline.

MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was up 0.2 percent, following a rise in global shares on Monday. The index snapped an eight-day winning streak on Monday as investors took profits from last week's rally.

Fears over the U.S. fiscal crisis have dragged on many markets, but regional equities took direction from local factors.

Australian shares <.axjo> led Asia's outperformers with a 0.7 percent gain, lifted by a rise in iron ore prices <.io62-cni> to a five-month high.

"Iron ore is a very key commodity in the Chinese industrial machine, steel usage will bounce back and that is good news for our exporters," said Baillieu Holst director Richard Morrow.

Seoul shares <.ks11> rose marginally but underperformed others in Asia, as investors were reluctant to build positions ahead of South Korea's presidential vote on Wednesday.

In Japan, the Nikkei average <.n225> surged 1.1 percent to an 8-1/2-month high and edged closer to the key 10,000-mark, with sentiment bolstered by a landslide election win for the conservative Liberal Democratic Party on Sunday. <.t>

LDP leader Shinzo Abe, who is due to be confirmed as Japan's next premier on December 26, is calling for far more aggressive monetary stimulus and huge public works spending to rescue Japan out of decades-long deflation, pledges which are seen pressuring the yen and supporting Japanese stocks by improving earnings for Japanese exporters.

"The Nikkei is up today primarily due to the rise in U.S. stocks overnight, but the 'Abe-effect' is surprisingly longer-lasting as investors seem to be postponing the timing of unwinding their positions until they see the details and specifics in policies," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

YEN REMAINs PRESSURED

The dollar inched up 0.1 percent to 83.95 yen, off a 20-month high of 84.48 yen hit on Monday but well above its late New York levels on Friday.

Abe applied fresh pressure on the Bank of Japan on Monday, saying that the election result reflected strong public support for his views, which he hoped the BOJ would take into account at its two-day policy meeting starting on Wednesday.

"The dollar has more upside against the yen ahead of the BOJ's meeting, with expectations for some additional easing steps being strengthened after Abe's comments yesterday," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

"The corrective fall in the dollar/yen after the election was small and it's crawling up because the yen weakening trend is still intact. But after the BOJ meeting, there will likely be pre-holiday profit-taking, pushing the dollar/yen down by 1 to 2 yen," he said, adding that the dollar could temporarily touch 85 yen before profit-taking sets in by the end of the year.

The benchmark 10-year Japanese government bond yield hit a one-month high of 0.750 percent on concerns that big-scale fiscal stimulus could seriously increase the country's debt burden.

U.S. Treasury yields also inched up in Asia, with the 10-year yields briefly reaching 1.796 percent, its highest level since October 26, on hopes for a deal on the U.S. fiscal cliff.

London copper was up 0.2 percent to $8,078.50 a metric ton (1.1023 tons).

U.S. crude rose 0.4 percent to $87.57 a barrel and Brent added 0.5 percent to $108.18.

(Additional reporting by Victoria Thieberger in Melbourne; Editing by Eric Meijer)

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