Agreement to Resume Deal Reflects Improvement in Japan-S. Korea Relations

The improvement in Japan-South Korea ties has made significant progress, including in the economic field. It is important to build on this cooperation to avoid a backslide in relations and ensure that such efforts lead to an invigoration of the Japanese and South Korean economies.

Japan and South Korea have agreed to restore a foreign currency swap deal for the first time in eight years. The agreement was reached after the financial authorities of the two countries held a ministerial-level “Japan-Korea Finance Ministerial Dialogue” to discuss economic and fiscal issues.

Under a swap agreement framework, a country with a shortage of foreign currencies as a result of such issues as a financial crisis can swap its own currency for U.S. dollars or other currencies with another country.

Japan and South Korea concluded an agreement in 2001 to prevent a recurrence of the 1997 Asian currency crisis. The agreement was not renewed after its expiration in 2015, following a deterioration in bilateral relations prompted by the then South Korean president’s landing on the Takeshima islands in Shimane Prefecture, among other events.

Japan’s Finance Ministry currently has swap agreements with six Asian countries, including Thailand, Indonesia and the Philippines. It may be a natural step to reinstate the agreement with Seoul in the wake of an improvement in Japan-South Korea relations since the inauguration of South Korean President Yoon Suk Yeol.

South Korea’s foreign exchange reserves currently stand at about $420 billion (about ¥60 trillion), so the risk of South Korea falling into an actual currency crisis is small under current circumstances. Tokyo and Seoul agreed to revive the arrangement for only $10 billion at the recent meeting. The foreign currency swap deal is said to be highly symbolic of the improvement in their bilateral relations.

It is vital not only to resume the agreement, but also to use it as an opportunity to expand the strengthening of close cooperation in many other areas, including the expansion of mutual private investments.

Personal exchanges between Japan and South Korea have already become more active. Looking at foreign visitors to Japan in May by country and region, South Korea topped the list, accounting for about 30% of the total. Japan also accounted for the largest number of tourists visiting South Korea.

The increase in the number of foreign tourists visiting Japan has been a factor in the economic boost. There is reportedly growing interest among young Japanese and South Koreans in the music, movies and food cultures in each other’s countries. The hope is that the two nations will deepen exchanges at the citizen level.

Japan has decided to redesignate South Korea as a country eligible for preferential treatment to simplify export procedures ahead of the restoration of the foreign currency swap agreement. South Korea has already reinstated Japan to its list of preferential countries. Japan has also eased measures that tightened controls on exports of semiconductor materials to Seoul.

Japan has strengths in semiconductor manufacturing equipment and materials. South Korea is home to Samsung Electronics Co., one of the world’s leading manufacturers of semiconductors. It is hoped that the two nations will promote cooperation in strengthening semiconductor-related supply chains and use such cooperative efforts for economic security.

(From The Yomiuri Shimbun, July 4, 2023)