You may be unaware of it, but solid gains have been posted in Japanese defense stocks since Wednesday’s firing of seven ballistic missiles by North Korea.

It’s one of the worrisome offshoots of the escalating North Korean crisis and one that Boston investment adviser Bill Rhodes believes has ominous market implications down the road, because it’s certain to heighten international tensions.

That, in effect, is what he’s telling his institutional clients, who, in aggregate, manage assets of more than $1 trillion. As far as Japan goes, he points out, it means investors there are betting on a major Japanese rearmament, the likelihood that their country will seek to become a nuclear power, and an upsurge in Japan’s defense revenues.

Mr. Rhodes, the skipper of Boston-based Rhodes Analytics and a former Merrill Lynch strategist, further notes that a more defense-oriented Japan would draw energy from the Japanese economy and, in turn, hurt global growth.

Adding to the region’s tensions, Mr. Rhodes adds, is the likelihood that Taiwan, recognizing that America won’t help it, will probably test missiles as well.

So far, the market’s reaction to the North Korean missile launchings has been pretty ho-hum. Granted, the Dow sold off 76 points Wednesday in reaction to that action, but the index quickly recouped most of that loss the following day when it rebounded 73 points. The Dow did fall 134 points Friday, but that was chiefly attributable to an unfavorable June jobs report, signaling a slowing economy.

Investors are far more interested in where interest rates are headed and the economic and earnings trends, observes a former Goldman Sachs strategist, Fred Dickson. Mr. Dickson, presently the chief investment strategist of Great Falls, Montana-based D.A. Davidson & Co., recently told me he believes the situations in North Korea and Iran will keep market nervousness elevated, but he doubts they’ll get worse or go away.

Strictly for now, Mr. Rhodes views the North Korean situation as “a wait and see game for the market. I wouldn’t lose a lot of sleep over it now because nothing will be done about it,” he says. Beyond the near term, though, he sees potential danger to the world, as well as the financial markets.

He believes President Bush’s efforts to rally the international community to take action (such as U.N. sanctions) against North Korea’s missile tests will be fruitless because of dogged Russian and Chinese opposition. Further, he points out,”you can’t offer North Korea a carrot (a bribe), because they’ll simply take it and cheat.”

China, he notes, could use its influence at any time to shut down North Korea’s nuclear program, but it doesn’t want to. What Mr. Rhodes sees as especially alarming is that both Russia and China would just as soon have the region be agitated. Why so? Because by increasing instability, they increase their influence, he says.

Russia’s avowed goal, he believes, is to become a more significant world influence and recover ground it lost after the collapse of the Soviet Union. Being a major political player as it relates to the actions of North Korea, he says, would be a step in that direction.As for China, Mr. Rhodes believes its support of North Korea — which he characterizes as a Chinese satellite state — is yet another way for it to reassert itself as an up-and-coming power in the 21st Century.

Mr. Rhodes contends heightened international tensions also pose the risk of affecting world trade, impacting the flow of capital, and disrupting capital markets, notably the flow of goods. It could also lead to a hike in defense spending around the world, which would signal an increase in inflation. In effect, he says, a lot of uncertainties would be created that would invariably cause stock prices to decline.

He also sees the possibility — which he considers small — that North Korea’s actions could trigger a full-blown international crisis, with America, Japan, and Australia politically confronting North Korea, Russia, and China. “I wouldn’t rule it out,” he says.

Celebrity money manager Jim Rogers of Rogers Holdings views North Korea — which he will visit next month — as a temporary negative for the market, though he notes they have seven fewer missiles than before. If in fact their missiles were a failure, they will fire more, which will unsettle things again, he observes. Mr. Rogers goes on to say, “If we should attack them, it would have a serious effect, given we are probably already in a bear market.”

dandordan@aol.com