TOKYO  - The yen lost more ground in Asia on Friday, as traders bet that Japan's new government will heap further pressure on the central bank for aggressive easing aimed at boosting the economy.

The dollar fetched 86.44 yen in Tokyo after rising at one point to 86.63 yen -- its highest level since August 2010 -- and up from 86.09 yen in New York on Thursday.

The euro rose to a 17-month high of 114.68 yen before buying 114.48 yen in the afternoon from 113.97 yen. The European common currency was quoted at $1.3241 from $1.3235. "Unlike when the (dollar/yen) pair surged in February and March, there is less sense of overheating since everyone has been buying cautiously," a senior dealer at a major Japanese bank told Dow Jones Newswires.

Data released early Friday showed factory output in November fell by a sharper than expected 1.7 percent month on month, spelling out the daunting task ahead for the new conservative government in reviving the economy. Japan's economy has been hurt by a strong yen, turmoil in the key European market and the global economic slowdown. Newly-installed Prime Minister Shinzo Abe pledged a fix for the long-suffering economy by spending big and pressuring the Bank of Japan into setting a two percent inflation target in a bid to end deflation.

The 58-year-old leader -- whose Liberal Democratic Party swept national elections earlier this month -- has also stepped up pressure on the central bank to take more aggressive easing measures. Abe threatened to revise a law guaranteeing the BoJ's independence if it refused to adopt his inflation target proposal.

Markets were also watching developments in the United States, where lawmakers are yet to reach a deal to avert the huge tax hikes and spending cuts due to take effect next week, which could tip the economy into recession.

While Democrats and Republican blame each other for the impasse, reports that the House of Representatives will reconvene on Sunday has raised hopes for an 11th-hour deal to avert the so-called "fiscal cliff".

The dollar was mixed against other Asia-Pacific currencies, slipping to 1,070.90 South Korean won from 1,072.03 won on Thursday, to 30.63 Thai baht from 30.65 baht and to 9,733 Indonesian rupiah from 9,808 rupiah.

The greenback firmed to Sg$1.2235 from Sg$1.2230, to 54.87 Indian rupees from 54.76 rupees, to 41.26 Philippine pesos from 41.18 pesos and to Tw$29.04 from Tw$29.03.

The Australian dollar bought US$1.0374 from US$1.0355 while China's yuan rose to 13.85 yen from 13.73 yen.