The yen strengthened almost 1 percent after North Korea tested a nuclear bomb on Sunday, spurring demand for haven assets.
The currency advanced versus all of its Group-of-10 peers after the official Korean Central News Agency said it carried out the test in an act of “self-defense” against its enemies. President Donald Trump threatened to increase economic sanctions and halt trade with any nation doing business with North Korea.
“The latest test probably won’t affect risk sentiment too badly on Monday, but it does, however, set the scene for a step-up in rhetoric by the U.S. and maybe a response by China,” said Andrew Wilmont, co-head of European high-yield investment at Neuberger Berman, which oversees about $250 billion. “Any step-up in action by those two players would cause a deterioration in sentiment.”
The yen gained 0.8 percent to 109.33 per dollar as of 5:12 a.m. in Sydney on Monday after advancing as much as 0.9 percent earlier. The currency dropped 0.8 percent last week amid speculation global economic growth is improving.
The yen has had a mixed reaction to previous North Korean nuclear tests as investors have had to choose between the currency’s haven nature and Japan’s proximity to North Korea. The yen weakened 0.1 percent on the days of the first two tests Oct. 9, 2006, and May 25, 2009.
When the North held its third test on Feb. 12, 2013, Japan’s currency jumped 0.9 percent, and when the rogue state said on Jan. 6, 2016, it had successfully tested its first hydrogen bomb, the yen strengthened 0.5 percent.
On the day of the most recent test, Sept. 9, 2016, the yen rallied as much as 0.5 percent before erasing gains to end the day 0.2 percent weaker as it declined along with the South Korean won.
South Korea’s weather agency said on Sunday it detected a magnitude 5.7 quake near the Punggye-ri nuclear test site in northeast North Korea. Energy from the explosion was about six times stronger than the nuclear test of last September, it said.
“All options are on the table,” Japanese Foreign Minister Taro Kono said on public broadcaster NHK. Prime Minister Shinzo Abe said a North Korea nuclear test would be “absolutely unacceptable.”