Yen spikes after mention of hydrogen-bomb test in Pacific
Equity markets across the Asia-Pacific region were down on Friday, with stocks in Japan reversing early gains following fresh threats from North Korea, while China-related stocks declined on a credit-rating downgrade.
North Korean Foreign Minister Ri Yong Ho said late Thursday in New York that the country may consider a nuclear test of “unprecedented scale” in the Pacific Ocean, according to South Korea’s Yonhap News Agency.
Those comments came shortly after North Korean leader Kim Jong Un said he was considering the “highest level of hard-line countermeasure” in response to President Donald Trump’s warning that the U.S. would annihilate North Korea if forced to defend itself or its allies.
The haven Japanese yen spiked in morning trade following the report of the nuclear-test threat, with the U.S. dollar-yen pair falling to a low of 111.97 before recovering to around 112.06. The U.S. dollar was still down around 0.3% from Thursday’s Japan market close.
Gains in the yen sent the Nikkei Stock Average down 0.2%, after earlier being up as much, as a stronger currency would hurt the country’s key export stocks. In South Korea, the Kospi also extended declines and was down 0.4%.
“If you look around there are just not a lot of reasons to buy,” said Chris Weston, chief market strategist at IG Markets. “The commodity trade is under pressure, people are talking about tightening in various economies, [and] the North Korean hydrogen threat is keeping people on their toes.”
Meanwhile, Chinese shares were broadly down after rating firm Standard & Poor’s downgraded the country’s sovereign credit rating, due to risks associated with its increasing debt. The Shanghai Composite Index was off 0.4%, while the Shenzhen benchmark was also off 0.4%.
Still, analysts don’t expect the selling pressure to continue, as the S&P downgrade had been anticipated by the market, and brings its rating in line with Moody’s, which downgraded the nation in May, and Fitch, which made its cut in 2013.
“Obviously the Chinese markets have rallied well since the initial Moody’s downgrade” in May, said David Millhouse, head of China research at Forsyth Barr Asia.
In Hong Kong, the Hang Seng Index was off 0.6%, as S&P also downgraded its credit rating for the city, tracking its decision for mainland China.
Amid the broad declines, the outlier on Friday was Australia, with its benchmark stock index in positive territory, boosted by some bargain hunting in stocks following recent declines. The S&P/ASX 200 was last up 0.3%.
Though there was a sharp fall overnight in metals prices — a factor that would normally hit the Australian market — this was largely being offset by a weaker Australian dollar, said Ric Spooner, chief market analyst at CMC markets.
Iron-ore prices continued their recent weakness and fell 5% overnight as concerns about oversupply in the market remain. Oil prices, however, remain largely unchanged as the market awaits a meeting of the global oil cartel on Friday.
Source: Dow Jones