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South Korean and Japanese defense stocks are rallying after North Korea fired a missile over Japan

Shares of South Korean and Japanese defense companies rose sharply in Asia’s session after authorities confirmed North Korea launched a ballistic missile that flew over Japanese territory for the first time in five years.

U.S. authorities slammed the latest move from Pyongyang as “reckless and dangerous,” saying it poses an “unacceptable threat to the Japanese public.” They urged the country to refrain from taking more “unlawful and destabilizing acts.”

Japanese Prime Minister Fumio Kishida called the North’s latest actions “barbaric.” And South Korean President Yoon Suk-yeol said his office is considering stronger sanctions on Pyongyang in light of such continued provocations.

In South Korea, shares of Hanwha Aerospace, an aircraft engine manufacturer, rose more than 3% in the morning session, while Korea Aerospace, which also develops fighter jets, jumped more than 4%.

Victek, also a company that specializes in producing military equipment, rallied more than 11%, reaching highest levels in more than a month.

In Japan, Mitsubishi Heavy Industries, which also makes military machinery through its aircraft, defense and space department, gained more than 3% in Asia’s session. Hosoya Pyro-Engineering, which makes flare bombs and smoke candles for the Japanese self-defense forces, also rose more than 5% in Asia’s early session.

Nuclear threat?

The latest move from North Korea is a signal it may test a nuclear bomb in the next month or two, according to Rodger Baker, executive director at the Stratfor Center for Applied Geopolitics at Rane, a risk management firm.

“The North Koreans have cleaned out their tunnels for their nuclear tests,” he said on CNBC’s “Squawk Box Asia,” adding that a test is likely to take place between China’s party congress in mid-October and the U.S. midterm elections in November.

“It does make sense that if they’re going to be testing sometime in the next month, month and a half, the logic would be to do it between those two events,” he said.

“It’s probably for political considerations that North Koreans would be very cautious about testing in the middle of the Chinese Party Congress, certainly that may not go over well for the Chinese leadership and their relationship with North Korea.”

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