For How Traders See North Korean Risk, See Yen Versus Won

Updated on
  • KRW/JPY approaching 200-DMA for first time since November
  • Japan’s currency may gain beyond 9 per 100 won, Daiwa says

Perhaps the best barometer of rising geopolitical risk in East Asia is the outperformance of the yen against the won. And despite some technical resistance ahead, the yen’s strength can continue, according to Daiwa Securities Co.

Japan’s currency has gained about 3 percent against its South Korean counterpart since April 3, when President Donald Trump said the U.S. could act alone to solve the North Korean problem. The currency pair rebounded to 9.65 yen per 100 won Thursday after approaching its 200-day moving average of 9.51 Wednesday. 

The yen may breach this resistance level and rise beyond 9.00 per 100 won by the end of June, said Yuji Kameoka, chief FX analyst in Tokyo at Daiwa Securities Co.

Concerns are rising that North Korea will conduct a nuclear test to celebrate its founder Kim Il Sung’s 105th birthday and the anniversary of the establishment of its army this month. Trump and his Chinese counterpart, Xi Jinping discussed North Korea over the phone Wednesday. Adding to tensions, Ahn Cheol-soo, a top contender in South Korea’s presidential election on May 9, supports the U.S.’s anti-ballistic missile system in the south that China sees as a threat.

“Won weakness also reflects the risk that South Korea’s relationship with the North will worsen given the candidate who advocates a tougher stance against them is gaining popularity,” said Daiwa’s Kameoka. Although Japan wouldn’t remain unscathed should there be military conflict in the peninsula, the yen is still bought when risk aversion heightens globally, he added.

— With assistance by Kyung-Jin Kim

(Updates won-yen exchange rate in second paragraph.)
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