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The dollar was trading slightly higher above ¥106 in Tokyo on Friday after cutting early gains following reports that Prime Minister Shinzo Abe is stepping down.

At an afternoon news conference, Abe said he is resigning because his chronic ulcerative colitis has returned.

At 5 p.m., the dollar stood at ¥106.06-07, up from ¥106.00-00 at the same time Thursday. The euro was at $1.1891-1891, up from $1.1834-1834, and at ¥126.12-13, up from ¥125.45-45.

The dollar briefly rose above ¥106.90 on growing hopes for a U.S. economic recovery after the Federal Reserve said it will keep interest rates low for years, traders said.

But it then fell to around ¥106.10 on news of Abe's resignation, traders said. "The news was shocking as it came after Cabinet ministers recently denied Abe's resignation," an official of a foreign-exchange margin trading service firm said.

The dollar's sell-off came from "those who are concerned about political instability" in Japan, an official at a Japanese bank said.

"You should expect a fall in the dollar, as risk aversion is likely to increase," a currency broker said, apparently referring to political uncertainty following Abe's resignation.

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