What North Korea's missile tests mean for markets

North Korea's decision to test-fire missiles in the Sea of Japan on 4 July demonstrates leader Kim Jong Il's ability to play a strategic hand. So what does it all mean for efforts to persuade the regime to disarm?

Equity markets were rattled, and oil and gold prices surged, all because North Korea chose 4 July to test-fire missiles into the Sea of Japan. This latest provocation from the Stalinist state, which claims to have produced nuclear bombs, prompted international outrage and widespread debate on the motives of the Hermit Kingdom's' leader, Kim Jong Il. Regarded by the West as an irrational, "nuclear-obsessed" madman, as the FT's Anna Fifield points out with a taste for cognac, caviar and women he is said to be a strategic thinker by those who have met him.

The launch demonstrated Kim's ability to play a weak hand well. The North Korean economy is a basket case and the government isolated, "but he has flexed his military muscles", forcing the Bush administration to put this member of its "axis of evil" on the front burner.

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