Yen Leads Haven Assets Higher as North Korea Tests Hydrogen Bomb

(Bloomberg) -- The yen and the Swiss franc strengthened after North Korea tested a nuclear bomb on Sunday, spurring demand for haven assets.

The currencies were the best performers on Monday among the Group-of-10 exchange rates 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.

While the flight to safer assets was measured, any escalation of rhetoric may worsen investor sentiment, analysts said. The U.S., Japan, France, the U.K. and South Korea have called for an emergency meeting of the United Nations Security Council on Monday, UN Ambassador Nikki Haley said on Twitter.

“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 109.42 per dollar as of 6:01 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 franc gained as much as 0.7 percent to 95.83 U.S. cents as investors shrugged off weekend comments from Swiss National Bank President Thomas Jordan. The central bank is set to maintain its expansionary monetary policy for the foreseeable future even after the franc’s recent depreciation against the euro, Jordan was cited as saying in an interview with Finanz und Wirtschaft.

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 the peninsula. 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 in Feb. 2013, Japan’s currency jumped 0.9 percent, and when the rogue state said in Jan. 2016 it had successfully tested its first hydrogen bomb, the yen strengthened 0.5 percent.

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.

To contact the reporters on this story: Nicholas Reynolds in Singapore at nreynolds2@bloomberg.net, Selcuk Gokoluk in London at sgokoluk@bloomberg.net, Michael G. Wilson in Sydney at mwilson176@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Ven Ram, Boris Korby