And so, on the heels of North Korea’s “unprecedentedly big” nuclear test, the risk-off sentiment is already apparent in early trading.
Despite the fact that Japan is in the firing line, the yen will of course retain its safe haven status right up to and until traders begin to think the threat emanating from Pyongyang has gone from hyperbole to real, which means this should come as no surprise:
- USD/JPY SLIDES 0.9% TO 109.25 AFTER N KOREA TESTS HYDROGEN BOMB
Here’s the gap lower:
It’ll be interesting to see how gold trades.
If you start to see the yen underperform gold and the franc, well then that would suggest folks are starting to get seriously worried about the threat of an actual conflict.
In the event everyone starts to think maybe “there is no tomorrow” for Japan, BofAML notes that “potential JPY weakness would likely be manifested first against gold and CHF, which would likely be considered relatively lower risk than the yen in the case of a geopolitical incident around Japan, then USD, and finally against broad currencies.”
Here’s a fun table that shows how a cross-section (figuratively and literally in the case of the FX pairs) of Japanese assets has performed during past instances of “Kim risk”…
And don’t forget this rather disconcerting set of visuals…