Yen, bonds and gold gain after North Korea tests ‘hydrogen bomb’

The Japanese yen, gold and sovereign bonds all rose on Monday as North Korea’s latest nuclear test provoked the usual knee-jerk shift to safe havens, though equity losses were modest amid expectations the flare-up would prove fleeting.

The dollar was marked down as deep as 109.22 yen at the opening, off a whole yen from late on Friday, but there was no follow-through selling and it was last at 109.84.

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 favor if an actual war broke out in Asia.

Japan’s Nikkei did not take the news well, losing 0.9 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.4 percent with South Korea’s main index down 0.6 percent.

‘A horror movie’

“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.

“But we have been here now many, many times,” he added. “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.”

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 United States 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 Trump asked to be briefed on all available military options.

Futures on 10-year US Treasuries climbed 5 ticks, while yields on Japanese 10-year government debt rallied to their lowest since last November. E-Mini futures for the S&P 500 dipped 0.3 percent, though US markets will be closed on Monday for the Labor Day holiday.