NEW YORK (Reuters) - The yen edged higher against the dollar and euro on Wednesday, gaining for a third straight day as it continued to benefit from Bank of Japan monetary easing which fell below expectations.

The euro, meanwhile, fell to a one-week low against the dollar and traders said this was due to technical factors. Overall, sentiment towards euro zone assets continued to improve and investors positioned for euro area banks to repay part of the loans taken from the European Central Bank last year.

The yen, on the other hand, has risen 1.8 percent versus the dollar the last three days, the biggest three-day gain in seven months.

The move to end years of economic stagnation, which included a pledge to double its inflation target to 2 percent - its boldest action yet - had already been priced in by investors. markets. In general, the BoJ's measures fell short of lofty expectations for a faster, substantial stimulus boost.

The BoJ has decided that its open-ended commitment to buying assets would come into effect only next year.

"There was obviously disappointment about the BoJ's measures. However, I don't see the moves the last three days as a reversal of the bullish trend in dollar/yen," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.

"If anything, this is just a correction after weeks of gains in the dollar against the yen. We are still seeing a lot of interest in buying the currency pair and we still expect further upside," he added.

The dollar fell 0.3 percent to 88.45 yen, off a 2-1/2-year high of 90.25 yen on Monday. The U.S. currency though was still up around 11 percent against the yen from mid-November.

Strategists said while the yen would likely resume its overall trend and fall across the board, investors would refrain from betting against considerable yen weakness right away.

Greg Moore, currency strategist at TD Securities, said he doesn't foresee the dollar falling much from current levels, adding the currency pair would likely trade in the "high 80s to low 90s".

A change in BoJ leadership in April is expected to weigh on the yen, given prospects for Prime Minister Shinzo Abe to appoint a governor favoring more aggressive monetary easing.

Analysts saw the yen weakening over the medium term, based on expectations the BoJ will remain under pressure to inject more stimulus into the economy, possibly pushing the dollar to 100 yen, a level last seen in April 2009.

EURO STRENGTH

The euro dropped 0.5 percent against the yen to 118.05 yen, with three-day losses at 1.9 percent. That's the largest three-day loss since July 2012.

Against the dollar, the euro fell 0.1 percent to $1.3307, having hit a one-week low of $1.3263. Traders said the euro may have been pressured by dollar buying at the 11:00 AM EST (1600 GMT) fixing in London. Market players, however, reported bids at $1.3275-85.

The euro in recent sessions has been buoyed by receding fears about the debt crisis, highlighted by European Central Bank president Mario Draghi's comments on Tuesday that the euro zone could begin 2013 with more confidence.

While strong German economic data on Tuesday lent some support to the euro, strategists said if euro zone flash Purchasing Managers Index figures due on Thursday beat forecasts, the euro could break above $1.34.

Some analysts said the euro could rise before an announcement on Friday on the size of next week's first repayments of three-year loans to banks by the ECB a year ago.

That is likely to lead to some shrinking of the ECB's balance sheet at a time when the Federal Reserve and the BOJ are still expanding theirs. Balance sheet expansion usually hurts a currency, so a repayment to the ECB should help the euro, especially against the dollar and the yen, traders said.

Banks took more than one trillion euros in ultra-cheap loan-term refinancing operation loans from the ECB. A Reuters poll showed traders expected around 100 billion euros to be paid back next week.

(Editing by James Dalgleish)