Markets

Yen, bonds and gold gain on North Korea nuclear test, missile report

Typical knee-jerk shift to safer harbours as tensions rise

Employees of a foreign exchange trading company work near monitors showing TV news on North Korea’s nuclear test and the Japanese yen’s exchange rate against the Euro and the US dollar in Tokyo, Japan. Photograph: Reuters/Issei Kato

Mon Sep 4 2017 - 08:02

The Japanese yen, gold and sovereign bonds all rose on Monday as North Korea’s latest nuclear test, and reports Pyongyang was making preparations for another missile launch, provoked the usual knee-jerk shift to safer harbours.

The dollar was marked down to 109.57 yen JPY, having been as low as 109.22 and off a whole yen from late on Friday.

Japan is the world’s largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis, thus pushing up the yen. Many wonder, however, if Japanese assets would really remain in favour if a war broke out in Asia.

Japan’s Nikkei .N225 did not take the news well, losing 0.9 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan. MIAPJ0000PUS slipped 0.75 per cent with South Korea’s main index .KS11 down 1 per cent.

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“Like a bad horror movie, the North Korea saga intersperses moments of calm, with occasional action to jolt you out of your chair,” said ING’s head of Asian research than Rob Carnell.

Buying opportunity

“But we have been here now many, many times,” he added. “Unless this is the precursor to US military action, which we doubt, then in a little over a day or two, tensions will calm again, making this a good buying opportunity for investors with a strong enough nerve.”

European bourses looked set to open lower with Eurostoxx 50 STXEc1 and FTSE futures FFIc1 off 0.4 per cent and the DAX contract FDXc1 down 0.6 per cent.

North Korea on Sunday conducted its sixth and most powerful nuclear test, which it said was of an advanced hydrogen bomb for a long-range missile, prompting the threat of a “massive” military response from the US if it or its allies were threatened.

Speaking outside the White House after meeting with president Donald Trump and his national security team, US defense secretary Jim Mattis said Mr Trump asked to be briefed on all available military options.

On Monday, news agency Yonhap reported North Korea was seen to be making preparations for another ballistic missile launch, possibly of ICBM-class.

Futures on 10-year US Treasuries climbed 7 ticks, while yields on Japanese 10-year government debt rallied to their lowest since last November.

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