US Markets

Yen jumps as Abe resignation sparks political uncertainty

Credit: REUTERS/Thomas White

The yen bounced off a two-week low on Friday following news that Prime Minister Shinzo Abe is set to resign, while the dollar struggled to make headway elsewhere as the prospect of low U.S. rates for a long time weighed on the greenback.

By Eimi Yamamitsu

TOKYO, Aug 28 (Reuters) - The yen bounced off a two-week low on Friday following news that Prime Minister Shinzo Abe is set to resign, while the dollar struggled to make headway elsewhere as the prospect of low U.S. rates for a long time weighed on the greenback.

Abe, the nation's longest serving premier, will step down due to his worsening health, a source close to a ruling party official said on Friday. There had been speculation about his health all week.

The yen JPY=, which had been falling, leapt about 0.5% to a session-high of 106.10 per dollar on the news before easing a fraction to 106.32.

The yen is regarded as a safe-haven currency by virtue of Japan's status as the world's biggest creditor nation. Analysts said it jumped on news of Abe's resignation because the political uncertainty might prompt Japanese investors to bring money back home and convert it into yen.

"There's some nervousness and concerns because he's the longest serving Prime Minister, and with him gone there could be some uncertainty," said Bank of Singapore currency analyst Moh Siong Sim.

"Perhaps Abenomics is coming to a close," he said. "And perhaps we could see some repatriation and this is why the yen has strengthened somewhat."

Sim added, though, that he did not foresee a lasting impact on the yen because any successor would likely be an Abe ally.

"I'm not convinced it would have a lasting impact on the yen

Speculation about Abe's health and tenure had risen after he made two visits to a hospital recently. He has battled the chronic disease ulcerative colitis for years.

The news knocked yen crosses and the Japanese equity market but has not seemed to dim trade in other currencies.

The dollar faced pressure in Asia following a speech from Federal Reserve Chair Jerome Powell in which he said the central bank would adopt an average inflation target - meaning rates are likely to stay low even if inflation rises a bit in future.

An overnight jump in U.S. yields, as markets priced in higher inflation, had supported the greenback early in the Asia session. But as the day wore on investors turned dollar sellers once more, figuring U.S. rates would be low for a long time and stay there even if inflation picks up.

The Australian dollar AUD=D3 rose 0.5% to a 20-month peak of $0.7303 and the kiwi NZD=D3 rose by the same margin to $0.6668.

The euro EUR=EBS added 0.4% to $1.1867, as investors seemed to shrug off a rise in U.S. yields to return to selling dollars. The pound GBP= rose half a percent to $1.3260.

Powell said the Fed will seek to achieve 2% inflation on average, so that periods of super-low inflation would likely be followed by an effort to lift it over 2% for some time.

"Jay Powell's speech is bearish for the dollar over the medium-to-long term because U.S. real interest rates will have room to fall further into negative territory," said CBA currency analyst Joe Capurso.

(Reporting by Eimi Yamamitsu in Tokyo and Tom Westbrook in Singapore; Editing by Sam Holmes)

((tom.westbrook@tr.com; +65 6318 4876;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Markets Videos

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More