Yen rallies, Asian stocks down as North Korea fires missile over Japan

Yen rallies, Asian stocks down as North Korea fires missile over Japan

Asian stocks
A woman walks past an electronic stock indicator of a securities firm in Tokyo on Aug 29, 2017. (Photo: AP/Shizuo Kambayashi)

HONG KONG: The yen rallied on Tuesday (Aug 29) and Asian equity markets sank after North Korea fired a ballistic missile over Japan, ratcheting up geopolitical tensions in the region.

The missile test is the latest in a series of recent provocations by Pyongyang, testing US President Donald Trump, his South Korean counterpart Moon Jae-In and Japanese Prime Minister Shinzo Abe and raising fresh fears of conflict with the nuclear-armed nation.

Regional investors ran for cover soon after the opening, seeking out safe bets. The yen surged to four-month highs of 108.70 against the dollar from 109.26 in New York before easing slightly later in the day.

Gold climbed 1.9 per cent to near 10-month highs of US$1,322.

The greenback had already been suffering selling pressure as expectations for another Federal Reserve interest rate rise faded in recent weeks. The euro pushed above the US$1.20 mark for the first time since January 2015 as traders bet on the European Central Bank soon winding in its crisis-era stimulus measures.

Greg McKenna, chief market strategist at CFD and FX provider AxiTrader in Sydney, said: "What's important about the North Korean action is that it ratchets up the pressure on President Trump and Japan to respond. And that may put them squarely in a face-off with China should they respond militarily."

Stocks were in the red although initial sharp losses were pared, with Tokyo losing 0.5 per cent to sit around four-month lows. Seoul ended 0.2 per cent down, having lost more than one per cent earlier. Hong Kong was 0.4 per cent lower following five straight days of gains.

Sydney shed 0.7 per cent while there were also losses in Taipei, Manila and Wellington, though Shanghai ended up 0.1 per cent.

In early European trade London fell 0.7 per cent, Paris shed 0.9 per cent and Frankfurt was off 0.8 per cent.

"The reaction has been classic risk aversion," said Sean Callow, a senior currency strategist at Westpac Banking in Sydney, but added that "the market response is likely to be limited by the recent history of FX and equities settling down after each provocation from Pyongyang".


Japan's Abe said the "outrageous act of firing a missile over our country is an unprecedented, serious and grave threat and greatly damages regional peace and security".

Pyongyang last month carried out two ICBM tests that appeared to bring much of the US mainland within reach for the first time and heightened strains in the region.

At the time Trump warned North Korean leader Kim Jong-Un of raining "fire and fury" on the country, saying Washington's weapons were "locked and loaded", while Pyongyang threatened to fire a salvo of missiles over Japan towards the US territory of Guam.

Hitoshi Asaoka, strategist with Asset Management One, said the missile launch "could reignite concern over a possible military clash between the US and North Korea".

"The market can't help it but see risk aversion strengthen. We have to look out for how the US will perceive the latest missile launch," he told Bloomberg News.

On oil markets the key US contract West Texas Intermediate staged a small recovery, after suffering a 2.7 per cent sell-off on Monday on the back of concerns that killer Hurricane Harvey, which slammed Texas at the weekend, would batter demand for the commodity.

"Going forward, given that a significant portion of refining capacity in the US Gulf Coast is shut, we are likely to witness a situation of high domestic crude stockpiles which will put pressure on prices," Amit Musaddy of energy consultancy Trifecta told AFP.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 0.5 per cent at 19,362.55 (close)

Hong Kong - Hang Seng: DOWN 0.4 per cent at 27,765.01 (close)

Shanghai - Composite: UP 0.1 per cent at 3,365.23 (close)

London - FTSE 100: DOWN 0.7 per cent at 7,352.40

Dollar/yen: DOWN at ¥108.88 from ¥109.26

Euro/dollar: UP at US$1.2024 from US$1.1978 at 2100 GMT

Pound/dollar: UP at US$1.2950 from US$1.2933

Oil - West Texas Intermediate: UP 27 cents at US$46.84 per barrel

Oil - Brent North Sea: UP 25 cents at US$52.14 per barrel

New York - Dow: FLAT at 21,808.40 (close)

Source: AFP/ec