* Yen hovers near 20-month low versus dollar
* Abe will become Japan's prime minister on Wed
* Dollar index stays above 2-month low hit Dec. 19
* Disarray in US budget talks seen supporting dollar
By Masayuki Kitano
SINGAPORE, Dec 24 The yen fell and neared a
20-month low versus the dollar on Monday after incoming premier
Shinzo Abe renewed pressure on the Bank of Japan to adopt a 2
percent inflation target.
The yen, which rose on Friday on position-squaring, came
back under pressure after Abe said on Japanese television on
Sunday that he will try to revise a law guaranteeing the BOJ's
independence if his demand for a binding inflation target is not
The dollar rose 0.2 percent against the yen to 84.39 yen
. That was close to a high of 84.62 yen reached last
Wednesday, the greenback's strongest level against the Japanese
currency since April 2011.
Abe, who is set to become prime minister on Wednesday after
his opposition Liberal Democratic Party (LDP) won this month's
lower house election, has put the BOJ at the centre of political
debate, urging bolder monetary stimulus to beat deflation.
The dollar was steady to firmer against major currencies,
having gained a boost after negotiations to prevent a U.S.
fiscal crunch hit an impasse last week and dented investors'
appetite for risky assets.
"It looks like all momentum for the fiscal cliff
negotiations is gone," Rob Ryan, strategist for RBS in
Singapore, said on Monday.
Some U.S. lawmakers voiced concern on Sunday that the
country would go over the "fiscal cliff" on Dec. 31, triggering
harsh spending cuts and tax hikes.
Economists say such fiscal tightening could push the U.S.
economy back into recession unless Congress acts quickly to ease
the economic blow, and focus is now shifting to the possibility
of Congress acting after Jan. 1.
The dollar had surged on Friday after a budget plan proposed
by the Republican speaker of the U.S. House of Representatives,
John Boehner, failed to win support from his own party. That
deepened worries U.S. lawmakers might not reach a deal to avoid
the fiscal cliff by year-end.
The greenback will probably hold firm in the near term,
although it could get pushed around by year-end flows over the
next several days, said Ryan at RBS.
There has been some market chatter that Asian central banks,
which are thought to have conducted dollar-buying intervention
over the last few weeks, may be looking to sell the dollar to
buy currencies such as the euro and the Australian dollar, in
order to diversify their portfolios, Ryan said.
On the other hand, U.S. companies might buy the dollar for
year-end fund repatriation, he added.
"So we have two conflicting flows. I would prefer to favour
the second," he said, referring to the possibility of the dollar
getting support from fund repatriation.
The euro dipped 0.1 percent versus the dollar to $1.3182
, inching away from an eight-month high of $1.33085 hit
The dollar index, which measures the greenback's value
against a basket of major currencies, stood at 79.606,
staying above a two-month low of 79.008 set last Wednesday.