Although North Korea’s move have seen many investors moving to Japanese assets, many investors worry that in the event of an actual war, these very assets may lose their shine.
With North Korea raising the ante, gold, the Japanese yen, and sovereign bonds all rose on Monday with investors moving to safer harbors.
Reports have also emerged of Pyongyang making preparations for another missile launch.
Since Japan is the world’s largest creditor, traders tend to assume that Japanese investors would repatriate funds at times of crisis. However, if an actual war broke out, many investors wonder whether Japanese assets would still be viewed favorably.
Despite the positivity in the forex market, the Nikkei however did not take the news well and fell by 0.9%. Mirroring the sentiment, MSCI’s broadest index of Asia-Pacific shares outside Japan also slipped by 0.75% with South Korea’s main index down by 1%.
“Like a bad horror movie, the North Korea saga intersperses moments of calm, with occasional action to jolt you out of your chair,” said Rob Carnell, head of Asian research at ING. “But we have been here now many, many times. Unless this is the precursor to U.S. 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.”
On Sunday, China-backed North Korea conducted its sixth and most powerful nuclear test, which it claims was of an advanced hydrogen bomb for a long-range missile. This has prompted the U.S. to issue a threat of a “massive” military response if it or its allies were threatened in any way.
As per U.S. Defense Secretary Jim Mattis said the U.S. President Donald Trump has asked for all available military options be placed on the table.
On Monday, Yonhap, a news agency reported that North Korea was preparing for another ballistic missile launch, possibly of ICBM-class.
While futures on 10-year U.S. Treasuries climbed by 7 ticks, yields on Japanese 10-year government debt has rallied to their lowest since last November 2016.
E-Mini futures for the S&P 500 ESc1 slipped by 0.4%.
U.S. markets will remain closed on Monday since it is a Labor Day holiday.
In the forex market, the euro gained by 0.3% on the USD at $1.1898, although investors were quick to not take any position since the European Central Bank is scheduled to meet on Tuesday.
Reports have emerged that the ECB is unhappy with the Euro’s recent gains against the green back and is in no rush to signal the start of a tapering in its massive balance sheet.