Japanese Finance Minister Shunichi Suzuki (left), and South Korea's Economy and Finance Minister Choo Kyungho shake hands as they pose for a photo before their meeting at the finance ministry in Tokyo on June 29, 2023. - AP
TOKYO (Bloomberg): Japan and South Korea agreed to restore a foreign currency swap deal after its last agreement expired eight years ago, adding to signs that the two nations are improving their relations on multiple fronts including defence, trade and finance.
Japanese Finance Minister Shunichi Suzuki and his South Korean counterpart Choo Kyung-ho announced agreement on a range of topics on Thursday (June 29), including infrastructure investment and taxes. The revival of the currency swap accord was the most notable item.
Under the new deal, Japan and South Korea will be able to exchange their local currencies for an amount of up to US$10 billion, meaning that in times of crisis both nations will have access to foreign currencies if the need arises. The agreement didn’t specify a date for when the deal will expire.
"The resumption of the Japan-South Korea finance minister talks is in itself meaningful,” Japan’s chief currency official Masato Kanda told reporters earlier Thursday.
"We need to keep strengthening the momentum of improved relations.”
The neighbouring countries have recently been working to improve relations while carefully navigating their ties with China, their biggest trading partner, and the US, their main security ally. South Korea and Japan have pledged to collaborate to address common challenges, such as the North Korean nuclear threat, supply chain issues and energy security.
The latest sign of the ongoing rapprochement follows in-person meetings between the two nations’ leaders in recent months and progress in talks to resolve their historical disputes, including compensation for Koreans forced to work at Japanese factories and mines during World War II.
The two finance ministers also met early last month, when they pledged to restart regular bilateral meetings for the first time in seven years.
The rest of the package announced Thursday included agreements on supporting efforts around debt, preparing "surge finance” frameworks for future crises like the pandemic, and reaching an understanding over the importance of clean energy supply chains.
Suzuki and Choo also shared the view that uncertainties are rising in the global economy, and condemned Russia’s invasion of Ukraine, according to a statement from Japan’s Finance Ministry.
The two nations’ ministers will hold talks again in 2024, this time in South Korea.
The first currency swap between the two countries was based on the Chiang Mai Initiative framework, an agreement signed among Asian economies over two decades ago to prevent a recurrence of the 1997-1998 currency crisis.
Since then, Japan and South Korea have engaged in multiple swap arrangements through various channels, including their finance ministries and central banks.
Over time, they have enhanced the terms, extending the duration and the limit on the swappable amounts of each deal. The total size of these deals once soared to $70 billion during the European debt crisis in 2011.
Both nations maintain bilateral currency swap agreements with various other countries. South Korea has existing deals with Switzerland, Indonesia, Australia and others that range in size between 2.3 trillion won ($1.8 billion) to 70 trillion won ($53.2 billion), according to the Bank of Korea. Japan in turn has similar agreements with India, Indonesia, the Philippines and others according to the nation’s finance ministry.
The earlier swap deal between Japan and South Korea expired in early 2015.
While South Korea indicated an interest in resuming negotiations on several occasions, Japan has firmly suspended the talks due to tensions arising from various incidents, such as the installation of comfort a women statue in South Korea and the radar-lock on dispute.
