Why does the dollar weaken when the North Korea issue becomes tense now?
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Now, the topic for this time isThe North Korea Issue and the Yen-Dollar Exchange Rate.
As the North Korea issue becomes more tense, geopolitical risks are rising.
Many commentators are saying, "Even though Japan is closer to the United States, I don’t understand why the yen is strengthening."
However, if you think rationally, the reason becomes clear.
Before thinking about this issue, first consider the following problem.
【Example】 There are two individual stocks.
Stock A was expected to grow earnings by 50%, but in reality it only rose 30%.
Stock B was expected to grow earnings by 5%, but in reality it grew by 20%.
As a result, stock B was bought while stock A was sold, even though stock A had the larger earnings growth.
This is because the forecast numbers had already been “factored in,” in other words, reflected in the price.
Now, return to the North Korea issue.
Types of North Korean missiles
1) Scud ER (range about 1000 km)
2) Nodong (range about 1300 km) Tokyo within range
3) Taepodong (range about 1500 km)
4) Musudan (range about 2500–4000 km)
5) Taepodong 2 (range about 6000–10000 km) SF, LA within range
This time North Korea has succeeded in launching an intercontinental ballistic missile (ICBM: range of 5500 km or more) and can also carry a nuclear warhead.
When organized and considered, it becomes:
＜Before ICBM development＞
★ Japan is already within North Korea’s missile range
★ The United States is outside North Korea’s range
＜After ICBM development＞
★ Japan, whether or not an ICBM is developed, already faced risk.
★ Therefore, Japan’s risk did not increase due to ICBM development.
★ The United States now lies within North Korea’s range
★ Meanwhile, the United States faces increased risk due to this ICBM development.
＜Conclusion＞
Since the United States’ risk has increased relatively more,the dollar will be sold and the yen bought.
Note) The above is my personal view and is intended solely to improve financial literacy. Therefore, it was not created for investment solicitation. Please make final investment decisions at your own responsibility.
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