LONDON, June 9 (Reuters) - The euro held near its highest point in 7-1/2 years versus Japan's yen on Thursday before a potentially pivotal European Central Bank rate decision, with policymakers expected to announce an end to the bank's multi-year monetary stimulus.
The ECB is all but certain to flag an end to its long-running asset purchase programme at the end of this month, and promise an interest rate hike for July, but the size and pace of its tightening are uncertain.
A hawkish Federal Reserve and soaring inflation has upped the pressure on Frankfurt to raise rates, with markets expecting more than 135 bps of cumulative rate hikes by end of the year.
"Should the ECB decide to bring forward the timing for tightening policies, then we can expect more substantial gains for the single currency," said Ricardo Evangelista, a senior analyst at ActivTrades based in London.
In contrast, the Bank of Japan has been relatively sanguine about the yen's drop. Governor Kuroda said on Wednesday that the yen weakening was positive to the economy as long as moves were stable, while adding that FX policy was not the authority of the BOJ.
The euro was trading at 142.76 yen, just below a January 2015 high of 144.25 yen hit on Wednesday. The Japanese currency has weakened more than 4% versus the euro so far this month.
Against the U.S. dollar, the yen extended its slide, falling to a fresh 20-year low of 134.56 yen per dollar in early trade before recovering to 133.79.
It is not far from the 135.20 hit on Jan. 31, 2002, and a break past that would be its lowest since October 1998.
"You've got essentially a hawkish ECB versus an extreme dovish Bank of Japan, and from that you've seen a fantastic, beautiful trend ... If you get anything vaguely hawkish today then I think euro/yen is going to be the better long over euro/dollar because you've got more of a divergence between the central banks," said Matt Simpson, senior market analyst at City Index in Sydney.
The BOJ allows Japan's benchmark 10-year bond yield to move up to 0.25 percentage points from its 0% target, and it was last at 0.249%.
In contrast, Germany's 10-year yield , the benchmark for the euro area, rose to a new eight-year high above 1.37% on Thursday before the ECB rate decision and the gap between the German and Japanese benchmarks grew to its widest in nine years on Thursday. .
Elsewhere, the dollar index was broadly steady at 102.64.
Reporting by Saikat Chatterjee; additional reporting by Alun John in HONG KONG; Editing by Hugh Lawson