* Safe-haven yen on defensive as Nikkei rallies more than 4 pct
* Landslide win for Japan's Abe feeds stimulus hopes
* Worries also persist Abe may turn focus away from economy
* Beleaguered pound takes a breather, Aussie near 2-week high (Updates prices)
By Shinichi Saoshiro
TOKYO, July 11 (Reuters) - The safe-haven yen fell on Monday amid an improvement in investor risk appetite following a surge in Tokyo stocks, but traders said the greenback will be capped longer term by views the Federal Reserve will remain cautious on interest rates.
The dollar rose 0.8 percent to 101.37 yen JPY= after sliding to as low as 99.99 yen on Friday in the wake of the U.S. jobs report. The euro was up 0.8 percent at 112.020 yen EURJPY=R
Job creation in June was much stronger than expected, increasing by 287,000 and easing fears that the U.S. labour market may be faltering. But the report did not change the view that the Fed may not hike rates this year, particularly after May payroll growth was revised down to 11,000 from 38,000. euro was steady at $1.1045 EUR= , after recovering from Friday's low of $1.1002. The dollar index .DXY inched up 0.1 percent to 96.351, hovering near an 11-day high of 96.697 reached on Friday.
Japan's Nikkei .N225 rose more than 4 percent following Friday's gains on Wall Street. Tokyo shares also reacted to Sunday's election win by the ruling Japanese coalition which fed hopes that Prime Minister Shinzo Abe's economic policies, such as fiscal stimulus, would progress. .T
"We still see the yen appreciating in the medium to long term, but for the moment we see the market focusing on Bank of Japan's policy and Japan's fiscal stimulus plans now that the Japanese elections are over," said Shin Kadota, chief Japan FX strategist at Barclays (LON:BARC) in Tokyo.
Abe's ruling coalition won a landslide in an election for parliament's Upper House. the win is seen clearing the way for the Japanese government to compile fresh stimulus measures, there are concerns that revising the constitution could now be given priority with economic steps taking a back seat.
"Abenomics", a series of reflationary policies designed to boost the Japanese economy, had been a key factor that lifted equities and weakened the yen after Abe took office in 2012. But most economists believe it has done little to boost the broader economy.
"The government's agenda could pivot away from Abenomics and renew yen buying by foreign players. There was little reason to sell the yen to begin with, as Japan has a large current account surplus, the Fed is unlikely to actively hike rates and fundamental risks smoulder in Britain, the EU and China," said Junichi Ishikawa, forex analyst at IG Securities in Tokyo.
While the yen could ultimately gain against the dollar, the greenback would still appreciate against other currencies due to such fundamental risks facing the global economy, Ishikawa added.
Elsewhere, the pound steadied a little following the post-Brexit turbulence which has buffeted the currency through much of this month.
Sterling inched up 0.1 percent to $1.2964 GBP=D4 after crawling away from a 31-year low of $1.2798 struck last week.
Still, the pound was seen vulnerable in the longer term with the UK still in the beginning stages of working out its future relationship with the European Union.
The market is also bracing for the Bank of England to potentially ease monetary policy to shield the economy from the aftermath of Brexit, which would also weigh on sterling.
The Australian dollar was flat at $0.7564 AUD=D4 , not far from a two-week high of $0.7574 reached on Friday.