December 24, 2012 / 1:20 AM / 5 years ago

FOREX-Yen dips as premier-elect Abe heaps pressure on BOJ

* Yen hovers near 20-month low versus dollar

* Japan’s next PM Abe heaps keeps up pressure on BOJ

* Dollar index stays above 2-month low set last Wednesday

* Disarray in US budget talks seen supporting dollar

By Masayuki Kitano

SINGAPORE, Dec 24 (Reuters) - The yen dipped 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 met.

The dollar rose 0.2 percent against the yen to 84.44 yen . That was close to a high of 84.62 yen that had been set 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 greenback was broadly higher after negotiations to prevent a U.S. fiscal crunch hit an impasse last week, denting investors’ appetite for risky assets.

“It looks like all momentum for the fiscal cliff negotiations is gone,” said Rob Ryan, strategist for RBS in Singapore.

While the dollar could get pushed around by year-end flows over the next several days, it will probably stay firm in the near term, he added.

“On balance I would see a stronger U.S. dollar into the end of the year,” Ryan said.

Some U.S. lawmakers voiced concern on Sunday that the country would go over “the fiscal cliff” in nine days, triggering harsh spending cuts and tax hikes, which economists say could push the U.S. economy back into recession.

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 had deepened worries that U.S. lawmakers might not reach a deal to avoid the fiscal cliff by year-end.

The dollar index, which measures the greenback’s value against a basket of major currencies, inched up about 0.1 percent to 79.670, and stayed above a two-month low of 79.008 set last Wednesday.

The euro dipped 0.1 percent versus the dollar to $1.3172 , inching away from an eight-month high of $1.33085 hit last Wednesday.

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