North Korea fired a missile early on Tuesday that flew over Japan and landed in the Pacific waters off the northern region of Hokkaido, South Korea and Japan said, in a sharp escalation of tensions on the Korean peninsula.
North Korea has conducted dozens of ballistic missile tests under young leader Kim Jong-Un, the most recent on Saturday, but firing projectiles over mainland Japan is rare.
"North Korea's reckless action is an unprecedented, serious and a grave threat to our nation," Japanese Prime Minister Shinzo Abe told reporters.
Earlier this month, North Korea threatened to fire missiles into the sea near the US Pacific territory of Guam after US President Donald Trump warned Pyongyang would face "fire and fury" if it threatened the United States.
The war of words between Mr Trump and Pyongyang caused global alarm and rocked financial markets.
"The missile flew across Japan this time, so the implications will likely be a bit different from previous ones," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
The yen rose 0.8 per cent to 108.33 to the dollar, its highest since April, despite Japan's proximity to North Korea.
The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialise.
The safe-haven Swiss franc also advanced 0.5 per cent to 0.9510 franc on the dollar , its highest level in about a month and rose 0.6 per cent to 1.1385 per euro .
Gold also jumped 0.9 per cent to $1,324 per ounce, hitting its highest level since November 9.
Investors also rushed to the safety of US Treasuries, pushing down the 10-year yield to a two-month low of 2.124 per cent.
On Monday, US shares were narrowly mixed as investors tried to assess the flooding damage caused by Tropical Storm Harvey, powerful hurricane to strike Texas in more than 50 years when it came ashore on Friday.
US gasoline priced surged as much as 7 per cent to a peak of $1.7799 per gallon on Monday, the highest since late July 2015. It last stood at $1.7317 in early Tuesday trade.
Going in the opposite direction, US Crude oil prices hit one-month lows on Monday, on worries refinery shutdowns due to the flooding could boost inventory.
US crude futures stood at $46.79 per barrel in early Tuesday trade, up 0.5 per cent on the day, after having fallen to as low as $46.15 on Monday.