* Graphics: World exchange rates in 2020 https://tmsnrt.rs/2RBWI5E
By Eimi Yamamitsu
TOKYO, Aug. 28 (Reuters) – The yen jumped out of a two-week low on Friday following news that Prime Minister Shinzo Abe is set to step down as the dollar struggles to move ahead elsewhere as the prospect of low US interest rates for a long time weighed on the greenback.
Abe, the nation’s longest-serving prime minister, will step down because of his deteriorating health, a source close to a ruling party official said Friday. There had been speculation about his health all week.
The yen that had fallen jumped about 0.5% to a session high of 106.10 per share. Dollars in the news before bringing a fraction to 106.32.
The yen is considered a safe haven currency due to Japan’s status as the world’s largest creditor nation. Analysts said it jumped on the news of Abe’s resignation because the political uncertainty could cause Japanese investors to bring money home and convert it to the yen.
“There is some nervousness and concern because he has gone the longest-serving prime minister, and with him there may be some uncertainty,” Bank of Singapore currency analyst Moh Siong Sim said.
“Maybe Abenomics is approaching,” he said. “And maybe we could see some repatriation, and that’s why the yen has strengthened somewhat.”
Sim, however, added that he did not foresee a lasting impact on the yen because any successor would likely be an Abe ally.
“I am not convinced that it will have a lasting effect on the yen
Speculation about Abe’s health and termination had increased after he recently paid two visits to a hospital. He has been battling the chronic disease ulcerative colitis for years.
The news knocked the yen cross and the Japanese stock market, but has not seemed to dampen trading in other currencies.
The dollar came under pressure in Asia following a speech by Federal Reserve Chairman Jerome Powell, in which he said the central bank would adopt an average inflation target – meaning prices are likely to remain low even if inflation rises slightly in the future.
An overnight jump in US interest rates as markets priced in higher inflation had supported greenbacks early in Asia. But as the day wore on as investors turned dollar sellers once again, expecting US interest rates to be low for a long time and remain there even as inflation rises.
The Australian dollar rose 0.5% to a 20-month high of $ 0.7303, and the kiwi rose by the same margin to $ 0.66688.
The euro added 0.4% to $ 1.1867 as investors seemed to push away from a rise in US interest rates to return to selling dollars. The pound rose half a percent to $ 1.3260.
Powell said the Fed will try to achieve 2% inflation on average, so periods of super-low inflation are likely to be followed by efforts to lift it above 2% for some time.
“Jay Powell’s speech is bearish for the dollar in the medium to long term because US real interest rates will have room to fall further into negative territory,” said Joe Capurso, CBA currency analyst. (Reporting by Eimi Yamamitsu in Tokyo and Tom Westbrook in Singapore; Edited by Sam Holmes)