Yen slides as Abe takes power in Japan

The yen has hit its lowest level in 20 months as Shinzo Abe prepares to return as prime minister. The Liberal Democratic Party won a landslide victory at the polls earlier in the month and the party’s leader has promised to weaken the currency and introduce stronger fiscal measures in order to stimulate growth.

Activity in most global financial centres has been weak because of the Christmas holidays. The US dollar settled at 85.27 yen after hitting 85.38 yen, the highest it has been since April last year.

Abe’s promise for massive fiscal spending and more aggressive monetary easing has caused analysts to admit there is unlikely to be much demand for the yen over the short term. The Bank of Japan has released the minutes from a policy meeting in November showing that a number of board members have accepted that if the economy worsens further decisive action has to be taken.

In the US there are still concerns that a financial policy agreement will not be reached before the end of the year and that the fiscal cliff of tax hikes and cuts in spending could tip the world’s largest economy into recession.

The euro remains unchanged at $1.3182 and was up against the yen at 112.42. The holidays also meant the Australian dollar hasn’t moved much at $1.0357.