North Korea is potentially one of the biggest geopolitical players of our lifetime. The country of more than 25 million people and a GDP surpassing $25 billion has become a thorn in the West’s side because of its insistence on developing nuclear weapons. Today, N. Korea is lagging behind its southern neighbor, South Korea which has a population of more than 51 million people and a GDP of more than $1.5 trillion. South Korea is home to some of the biggest global brands like Samsung, Hyundai, and LG.
The main reason why North Korea has lagged behind the south is that its system of government is communism. The country is headed by a family, that has become very powerful. To protect its leadership, the country has insisted on building nuclear capabilities. These nuclear weapons are manufactured to prevent any foreign interference or an attempt to overthrow the regime.
Today and tomorrow, the country’s leader, Kim Jong Un, will meet with the US president, Donald Trump for a summit that will aim to address the key issues. The United States will want the country to eradicate its nuclear weapons while North Korea will want the US to remove the sanctions that have been put in place. These sanctions make it impossible for the country to trade.
However, experts believe that achieving the denuclearizing goal will be close to impossible because North Korea uses weapons as an insurance policy. This thinking is valid because, in the past, the United States has not been good at keeping its promises. For example, the US was a NATO member who helped dethrone and kill Libya’s Gadaffi after he agreed to destroy the weapons of mass destruction.
As these negotiations continue, traders may be paying close attention to the Japanese yen, which is often viewed as a safe haven. This happens despite the fact that Japan is located a few miles from North Korea. It is also an American ally, which might mean that it would fall victim in case of a war in the region. In fact, North Korea has flown missiles above the country.
As the talks begin today, the USD/JPY pair has declined to a low of 110.53. This is close to the weekly low of 110.44. On the chart below, this price is below the medium-term moving averages. The RSI has also moved to below the 30 level. While the pair could continue moving lower today, there is a possibility that it will be a bit volatile. In fact, the Relative Volatility Index has been rising as shown in the chart below.
(Click on image to enlarge)
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