* Yen slides to 9-month low vs dollar of 81.718
* Japanese deflation to keep BOJ focus on easing measures
* Euro slips versus dollar post-LTRO
By Neal Armstrong
LONDON, March 2 (Reuters) - The yen fell to nine-month lows versus the dollar on Friday, retreating after data showed persistent negative price pressures in Japan which are likely to keep the Bank of Japan's focus on monetary easing and undermine the currency.
The yen has taken a hit after the BOJ's surprise monetary easing in February, while the dollar found some reprieve this week after U.S. Federal Reserve Chairman Ben Bernanke stopped short of signalling more stimulus.
The dollar rose around 0.7 percent to 81.718 yen on trading platform EBS after taking out Tuesday's high of 81.661 in early European trade. Technical analysts said next resistance was the 100-week moving average around 82.19, an indicator which dollar/yen has traded below since October 2007.
The dollar rose 0.4 percent versus a currency basket to 79.102 and also climbed against the euro.
Japan's core consumer prices fell year-on-year for the fourth consecutive month in January, suggesting mild deflation - the bane of the economy for over a decade - could persist this year as lacklustre wage growth curtails domestic demand.
"The Japanese data is persistently deflationary and the Bank of Japan is ready to do all they can to turn inflation positive," said John Hardy, currency strategist at Saxo Bank.
"But I do think dollar/yen is getting a little over-extended at these levels," he added.
Traders said an option barrier at 81.75 yen was attracting protective sell orders which may prevent further dollar gains in the near term, while analysts also said the dollar's upside could be limited.
"Putting all the pieces together, we could see USD/JPY peak around 82-83, but our bias from here would be to see USD/JPY lower, towards 75 over the next six months," said Bilal Hafeez, head of forex strategy at Deutsche Bank.
"One important support for the recent USD/JPY rally was likely long JPY positions being unwound. However, our latest measure of positioning suggests that investors have flipped to extreme short JPY positions. Almost all the previous instances of this happening have seen the yen rally over the subsequent month," he added.
The Australian dollar pushed higher against the yen, although the euro was held in check against the Japanese currency. The Australian dollar hit its highest level since May 2011 of around 88.00 yen at one point.
The low-yielding yen tends to come under pressure when market optimism about the outlook for global economic growth improves. That can trigger more risk-taking among investors and increase the popularity of carry trades, in which investors sell low-yielding currencies against higher-yielding currencies.
News that Japanese brewer Asahi is emerging as a front-runner to buy eastern European brewer StarBev, helped lend support to the euro versus the yen, traders said.
EURO/DOLLAR SLIPS
Against the dollar, the euro slipped 0.3 percent on the day to $1.3256, its lowest in around a week, after traders said large stop-loss sell orders were triggered through $1.3270.
Analysts said the European Central Bank's massive cash injection this week (LTRO) has made it more attractive to use the euro as a funding currency to buy higher yielding assets.
Market players believe the cash bonanza from the ECB will ease bank funding strains and support the euro zone's sovereign bond market. That, in turn, could help spur more risk-taking among investors.
But investors are also reluctant to buy the euro while worries over debt and growth cast a cloud over the region.
Greece has taken action needed to secure a second bailout according to Eurogroup President Jean-Claude Juncker, but the money can only be paid out on completion of a bond swap between Athens and private investors to be concluded on March 9.
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