Shinzo Abe resignation: Yen rises against dollar and pound as Japan's PM 'steps down'

The yen has risen sharply against the dollar while Japanese stocks lost ground on reports prime minister Shinzo Abe has decided to resign due to health reasons.

Local media in Japan are reporting that the country’s longest serving PM has called a news conference and is expected to resign his office, after eight years in power.

Japan’s Topix index dropped as much as 1.6%, while the yen – typically an investor safe haven - rebounded from losses following the report, Bloomberg reported. The currency rose 0.4% against the dollar and 0.18% against the pound on the day. The flagship Nikkei index lost more than 2% before a rebound.

CMC Markets analyst David Madden said: "Mr Abe is well known for desire to throw money at the stagnant Japanese economy, and that’s why he was elected as Prime Minister in late 2012.

"Haruhiko Kuroda, the head of the Japan of Bank, was appointed in early 2013, and together the two deployed very loose fiscal and monetary policies. Mr Abe has been the country’s longest serving Prime Minister so the news of his plans to stepdown has pushed up the yen against the dollar as it could signal the beginning of the end of Japan’s very aggressive easing policy but in light of the coronavirus, policy probably won’t change too much."

Before the news emerged, the dollar hit a two-week high against the yen, supported by US bond yields, which rose on the Federal Reserve’s aggressive new strategy to lift employment and an increased tolerance for higher inflation.

Speaking at the Fed’s Jackson Hole symposium, which was held virtually this year, Chair Jerome Powell said the central bank will seek to achieve 2% inflation on average. Bank of England Governor Andrew Bailey is due to speak at the symposium this afternoon.

The 65-year-old prime minister of the world’s third largest economy has visited Keio University Hospital twice in the past two weeks, telling reporters that he was undergoing tests to maintain his health.

Although the government has provided few details, domestic media have said he was actually undergoing treatment for ulcerative colitis, a chronic digestive condition that forced him to step down as premier in 2007.

He later returned as prime minister in 2012, going on to become Japan’s longest-serving premier and laying out his Abenomics strategy to boost its long-flagging economy.

The move would come just 24 hours since top government spokesman Yoshihide Suga said Abe would serve out his term, until September 2021.

Analysts said that, if his resignation is confirmed, the sudden, unplanned nature of the move was like to cause Tokyo stocks to underperform for some time.

The Tokyo Stock Exchange is home to some of the biggest blue chip stocks in the world, including car giant Toyota, investor SoftBank and electronics stalwart Sony.