Asia: Traders wary but Tokyo up on weaker yen

[HONG KONG] Japanese shares got a boost on Tuesday on a weaker yen but elsewhere in Asia some key markets drifted lower despite a positive lead from Wall Street as geopolitical concerns kept traders on edge.

North Korea's envoy to the United Nations warned on Monday that Pyongyang was preparing for "any mode of war" triggered by US military action, just days after it defiantly test-fired another missile.

US Vice-President Mike Pence was due to arrive in Tokyo on Tuesday bringing a renewed commitment to Japan's security amid growing threats from the isolated state.

There are fears that Pyongyang could react to a potential US strike by targeting South Korea or Japan, and officials in Tokyo and Seoul have been ill at ease with the more bellicose language deployed by President Trump's administration.

Washington has refused to rule out military action against the hermit state's regime, worried that North Korea may soon build a nuclear-tipped missile that could reach the US.

"It seems the focus is now firmly on future missile tests from North Korea and whether any future tests will actually be successful," said IG market strategist Chris Weston.

"From here, it would all be down to Mr Trump and his allies and what their reaction would be, but we can believe that markets will not take kindly to this. For now though the hope is on an increased prospects for talks, potentially incorporating China more into any negotiations."

Hong Kong fell 0.9 per cent in post-holiday trade, while Seoul retreated 0.1 per cent and Shanghai was also down 0.1 per cent despite positive data on China's economy released Monday.

Sydney was down more than one percent amid a slump in iron ore prices.

GOLD AND YEN WEAKEN

"Weaker iron ore prices have fuelled the nervous mood early this morning with major mining stocks being sold," said Ric Spooner, Sydney-based chief analyst at CMC Markets Asia.

"The oil price is also showing signs of faltering after rallying 10 per cent over three weeks. Energy stocks are attracting selling this morning as traders take the view that recent gains more than adequately reflect recent improvements in the outlook for oil."

But Tokyo stocks got a boost as a weaker yen lifted exporters following reported remarks by US Treasury Secretary Steven Mnuchin that US tax reform is still scheduled for 2017 and that the strong dollar was good over the long run.

The dollar rose to 109.20 yen early Tuesday from rates in the mid-108 yen range seen before news on Mr Mnuchin's remarks came out.

A weak yen is positive for Japanese exporters as it inflates their repatriated profits.

Jakarta, Singapore and Kuala Lumpur were also up.

Mr Spooner hinted that the safe-haven yen's retreat may also be a sign of easing geopolitical concerns.

"Gold and the Japanese yen have both weakened a little in Asian trading, suggesting that markets are taking a wait-and-see attitude towards geopolitical risk and the situation in North Korea."

AFP