Japan and South Korea are searching for the better way to closer their economic relations. Reinstituting a bilateral currency swap agreement to share dollars as needed during a financial crisis — an arrangement that expired in February 2015 — depends greatly on the tenor of diplomatic relations between the two neighbors.
The two countries’ finance ministries agreed last August to begin working-level discussions toward a new swap pact. But after South Korean activists installed a statue symbolizing wartime “comfort women” in front of the Japanese Consulate in Busan, Tokyo broke off the talks in January.
The previous swap arrangement came in response to developments such as the 1997 Asian currency crisis. But the matter has “taken on very strong political overtones,” a Japanese Finance Ministry official said.
South Korea’s currency now faces selling pressure due to tensions surrounding North Korea. The American missile strike on Syria last month fueled concern that a hard-line U.S. approach toward rule-breaking regimes will extend to Pyongyang, spurring selling of the won. “Now is the time” when the swap agreement is needed, an international finance expert said.
Meanwhile, talks on a three-way free trade agreement with China are sputtering. Negotiations resumed in April for the first time in three months, but lack momentum. Japan wants a high degree of trade liberalization, while the other two resist the idea.
Separately, state-owned Korea Electric Power is considering buying Japanese industrial group Toshiba’s British nuclear power subsidiary NuGeneration. The new administration’s policies could affect that matter as well.