Tokyo (Sept 22) The dollar buckled against the yen on Friday as tensions simmered on the Korean peninsula, though the sharp divergence between U.S. and Japanese monetary policy kept the greenback on track for a winning week against the yen.
North Korea said on Friday it might test a hydrogen bomb over the Pacific Ocean after U.S. President Donald Trump said he would destroy the country if it threatened the United States or its allies. Adding to investors' risk-aversion was S&P Global Ratings' downgrade to China's sovereign credit rating. On Friday, the ratings agency said the country's attempts to reduce risks from its rapid buildup in debt are not working as quickly as expected and credit growth is still too fast. The dollar dropped as much as 0.8 percent to 111.65 yen , before recovering to trade down around half a percent on the day at 111.96 yen in early London trade.
The yen tends to benefit during times of crisis due to Japan's net creditor nation status, and the expectation that Japanese investors would repatriate assets.
"Many are questioning whether that can remain the case in the presence of a risk event that is local to Japan," wrote RBC Capital Markets analysts in a note to clients.