Unprecedented North Korea Provocation Hits Asian Markets
Early this morning (Tuesday 29 August) North Korea fired another ballistic missile test. This time, however, the missile went over the northern part of Japan, an apparent attempt to provoke those who oppose North Korea's test program. The test did not lead to damage or injuries and broke into three pieces before plunging in the Pacific Ocean. While the world is now particularly waiting for a response from the USA, markets have already responded.
Rising geopolitical concerns about North Korea's missile test program caused Asian stocks and US futures to fall on Tuesday morning as investors are eager to seek safe haven assets such as the Japanese yen and gold. The yen in fact rapidly appreciated to a four-month high against the US dollar. Yen strength contributed to Japan's Nikkei index falling to a four-month low as a stronger yen makes Japan's export-oriented stocks less appealing.
US dollar weakness, particularly against the euro, is also caused by the lack of statements about monetary policy by Federal Reserve Chair Janet Yellen at a central bankers' summit in Jackson Hole last week, while European Central Bank (ECB) President Mario Draghi held back from talking down the euro. Meanwhile, tropical Storm Harvey has paralyzed Houston, triggering concerns about the potential impact on the US economy.
Meanwhile, South Korean defense stocks are benefiting of renewed concerns about further escalation after North Korea's provocation.
Indonesian stocks are also expected to be hit by the latest geopolitical turmoil. At the end of last week Indonesia's benchmark Jakarta Composite Index had touched a new all-time record high.
Japanese Prime Minister Shinzo Abe said the latest North Korea missile launch is an unprecedented provocation. Japanese authorities are now analyzing information, while Abe emphasized Japan will safeguard the safety of the Japanese people. Abe added Japan did not decide to shoot the missile from the sky as it was at a relatively safe level above the northern island of Hokkaido (at an altitude of approximately 550 kilometers) and broke into three pieces before safely falling into the Pacific Ocean about 1,180 kilometers off the Japanese coast. However, the North Korean test did set off warnings in the northern part of Japan, urging people to seek shelter.
The United Nations Security Council is said to convene an emergency meeting to discuss the latest developments and strengthen pressure on North Korea.
Earlier in August 2017, North Korea threatened to fire missiles into the sea near Guam, US territory, after US President Donald Trump warned Pyongyang would face "fire and fury" if it threatens the United States.