Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Financial markets are often irrational, though the yen's rise, seemingly in defiance of North Korean nuclear missiles flying over Japan, is a sane response by traders to a madman's threats.

To see why Sunday's hydrogen bomb test by Pyongyang will further enhance the Japanese currency's appeal, consider this chart, which shows cumulative purchases of foreign bonds and stocks by Japanese life insurance companies. That's 26 trillion yen ($237 billion) in assets that could be sold off and brought home, should there be outsized claims.

Yen's Missile Defense Shield
Japan's life insurance companies alone have bought a cumulative 26 trillion yen of overseas bonds and stocks over the past decade
Source: Bloomberg Intelligence

Nobody buying the Japanese currency for its haven appeal thinks that this money would need to return. But the fact that overall Japan has $3 trillion more in foreign assets than liabilities, and that -- as with the life insurers -- at least a chunk of this offshore wealth would be available for repatriation, becomes the basis for a stronger yen.

To this, add the unwinding of the yen carry trade, in which investors borrow a low-interest currency to buy assets denominated in a high-yielding, emerging-market currency.

Since the Bank of Japan adopted negative interest rates in February last year, the Brazilian real has returned 45 percent in yen terms. And the fabled Mrs. Watanabe has lapped it up. The share of real-denominated bonds in Uridashi debt sold to Japanese households jumped to 11 percent last year from 6 percent in 2015.

With the yen now appreciating, however, carry-trade returns from buying Mexican peso bonds -- the flavor of this year's Uridashi crop -- have vanished over the past couple of months. Mrs. Watanabe keeping her money at home could provide additional ballast to the yen.

The Real Fear Gauge
Shares of Japanese life insurance companies have fallen around 15 percent over the past couple of months amid rising fears of a war in the Korean peninsula
Source: Bloomberg

None of this is to suggest that there's no sign of worry in Tokyo's financial markets over Kim Jong Un's increasingly belligerent brinkmanship. Shares of Dai-ichi Life Holdings Inc. and T&D Holdings Inc., the owner of Daido Life and Taiyo Life, have fallen by around 15 percent over the past couple of months.

Japan's currency being a sanctuary doesn't mean all of the country's assets must be a picture of tranquility. Markets are never that irrational.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andy Mukherjee in Hong Kong at

To contact the editor responsible for this story:
Paul Sillitoe at