TOKYO - Traders bought the yen and dumped the South Korean won Friday as financial markets were jolted by news that North Korea conducted another nuclear test, reigniting geopolitical tensions.
Pyongyang later said the test had confirmed that it could mount a nuclear warhead on a rocket, hours after it carried out its fifth atomic explosion.
The news aggravated geopolitical tensions in the region as world powers including China struggle to rein in the country's erratic behaviour.
In response, investors bought the Japanese yen, which is widely seen as a safe investment in times of turmoil and uncertainty.
In Tokyo afternoon trading, the dollar weakened to 102.09 yen from 102.48 yen in New York, while the euro slipped to 115.15 yen from 115.40 yen.
The won took a hit, sinking about 0.7 percent against the greenback on the news, while Seoul's KOSPI share index dropped more than one percent.
"We can probably say that the market is reacting a little to signs North Korea conducted a nuclear test," Soichiro Monji, general manager for the economic research department at Daiwa SB Investments, told Bloomberg News.
"We're not seeing a huge amount of trading on this news, but it does contribute to a slight risk-off mood. The yen is strengthening, and shares aren't managing to rise." In other trading, the euro rose to $1.1279 from $1.1261, after the European Central Bank on Thursday left its stimulus policies unchanged.
Markets have been focused on central bank policy measures with hopes fading for a September US rate hike and as the Bank of Japan meets later this month.
"In order for the dollar to bounce back, rate-hike expectations have to heighten," said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank in New York.
"The market will need fresh factors and that may not come until retail sales next week."