Bad news, folks.

The dip-buyers didn’t show up in South Korea and Japan, as both the Kospi and the Nikkei were sharply lower overnight, down 1.2% and nearly 1%, respectively:

Meanwhile, the yen and gold built on gains when this hit, around 2 a.m. in New York:

That pushed USDJPY down even further and probably killed any chance of a late Kospi rebound. Gold moved a bit higher as well:

Oh, and regular readers will recall that we’ve variously suggested that CNYKRW (yuan-won) may be the best way to measure Korea tension given the fact that South Korean assets were already due for a pullback after strong inflows in the first half of the year and the renewed threat from the North while Chinese equities and the yuan have showed remarkable resilience as Beijing seeks to foster stability ahead of the Party Congress.

Well, have a look at this:

As for the outlook: it’s touch and go.

“Though considered a tail risk, a military confrontation on the Korean peninsula could see Asian currencies falling 5% to 10% and the region’s equities plunging 20%,” UBS Wealth Management Global CIO Mark Haefele and head of Asia Pacific investment Min Lan Tan write in a new note.

UBS has raised the probability of military conflict over a six-month investment horizon to 10% to 20% from less than 10% in April.

“Except for CNY and JPY, Asia-Pacific currencies would fall sharply in case of conflict, in particular IDR, INR and PHP,” Haefele warns.

Trade accordingly.