North Korea tensions remain under control, says Nomura

Tokyo-based Nomura said it expects the North Korea tensions to stay controlled, even after the rogue state on Tuesday fired a missile over Japan.

"We see today's provocation as in line with our base case for the [Korean] peninsula — that tension will remain elevated for some time, but also remain contained," a team of Nomura research analysts said in a Tuesday note led by Hong Kong-based economist Minoru Nogimori.

The analysts cited a Friday report from Alastair Newton, co-founder and director of Nomura geopolitical consultant Alavan Business Advisory, that lowered the probability of war breaking out on the Korean peninsula to about 35 percent from nearly 50 percent.

Although Newton said the probability will "almost certainly" fluctuate, none of Nomura's three early warning signals of potential U.S. military action have yet appeared this year.

The signals are: a U.S. government evacuation order to U.S. citizens in South Korea, a large scale U.S. military build-up near the Korean peninsula resembling 1994, and a ramp-up of the U.S. defense readiness condition to level three from level four, the Nomura report said.

While North Korea tensions remain elevated, USD/JPY tends to depreciate marginally, when North Korea engages in military action and the reactions tend to be more significant when North Korea conducts nuclear tests, explained analysts at Nomura who also that, historically, USD/JPY tends to depreciate the most when North Korea conducts nuclear tests.