Picture used for illustrative purpose. File

Tokyo's benchmark Nikkei index reversed earlier gains and closed down more than 1.4 percent Friday after reports said Japanese Prime Minister Shizo Abe was to resign for health reasons.

The Nikkei 225 index fell 1.41 per cent, or 326.21 points, to 22,882.65 after local media reported Abe was set to quit, hours before he was due to speak at a news conference. The broader Topix index lost 0.68 per cent, or 11.02 points, to 1,604.87.

The Nikkei index temporarily plunged more than 2.6 percent after national broadcaster NHK said "Abe intends to resign as his illness has worsened."

"It was a panic selling," said Toshikazu Horiuchi, a broker at IwaiCosmo Securities.

"Shares slightly recovered as investors bought back shares later, expecting monetary and economic measures won't be changed dramatically," Horiuchi told AFP.

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"Trading is likely to remain volatile for now as the market will pay close attention to his successor," he said.

Initial reports suggest Abe plans to stay in office while a leadership contest is organised and party officials and members vote on his successor.

Among the candidates are Deputy Prime Minister Taro Aso -- who also serves as finance minister -- and Chief Cabinet Secretary Yoshihide Suga, as well as former and current cabinet ministers.

The yen, considered a safe haven in times of uncertainty, rallied against the dollar, hitting 106.28 to the greenback, from 106.63 on Friday morning.

In Tokyo, Sony dropped 3.25 percent to 8,280 yen, Toshiba plunged 3.81 percent to 3,150 yen and Nintendo lost 1.50 percent to 56,390 yen.

Toyota fell 0.24 percent to 7,056 yen but Nissan gained 2.55 percent to 433 yen.

Agence France-Presse