Finance Minister Jun Azumi criticized South Korean President Lee Myung Bak on Friday for his recent visit to the disputed Takeshima islets in the Sea of Japan and his call for an apology from the Emperor over Japan’s colonial rule of the Korean Peninsula, indicating that Tokyo could downsize bilateral currency swap contracts.
“The government will consider every possible option,” Azumi told reporters, adding, “Nothing has been decided, including whether we will extend” the deadline of the expanded swap arrangement.
Last year, the two countries increased the contracts to $70 billion from $13 billion to ensure Seoul had access to sufficient dollar funds to withstand market instability amid the eurozone sovereign debt crisis. Azumi stressed the deal was reached as Japan “held out a hand” in response to South Korea’s request for assistance.
Under the swap accord, one country can obtain dollars by giving its currency to the other.
The swap was apparently agreed on to help South Korean authorities intervene in the foreign exchange market to prevent any sharp fall in the won against the yen and other major currencies, as it was feared the country would suffer capital outflows from foreign investors if they pulled out funds.
The agreement on the temporary expansion is due to expire at the end of October. Azumi declined comment on whether Seoul wants to keep the agreement in place.
Of the $70 billion, the Finance Ministry and the Bank of Japan have respectively extended their $30 billion lines with the Bank of Korea.
In addition, Japan and South Korea have maintained a $10 billion dollar-yen/won swap line as part of the Chiang Mai Initiative Multilateralization, a swap arrangement involving the 13 countries thatsigned onto the accord. Azumi indicated the need to maintain the arrangement.
It is not known if the BOJ, which upgraded its own contract with the BOK to $30 billion from $3 billion last October, will respond to the political friction and review the financial agreement together with the ministry.
“We cannot overlook any remarks that antagonize the Japanese people,” Azumi said, referring to Lee, who said Wednesday that Emperor Akihito must apologize for Japan’s 1910-1945 colonial rule of the Korean Peninsula if he wishes to visit South Korea.
Azumi formally acknowledged that he will cancel a trip to Seoul scheduled for later this month to meet with his South Korean counterpart as part of the dialogue between finance officials from Asia’s second- and third-biggest economies. Japanese officials earlier said they will defer the annual talks.
Separately, Economy, Trade and Industry Minister Yukio Edano warned of the possible negative impact on Japan’s economic relations with China as well as South Korea, given their territorial disputes.
Mayor postpones visit
Nagasaki Gov. Hodo Nakamura has postponed a trip to South Korea that was planned for next week in a sign that the strained ties between Tokyo and Seoul are beginning to affect regional-level exchanges.
In addition, a South Korean city said it will provisionally suspend friendship exchanges with a city in Akita Prefecture in light of the chill in bilateral ties, Yonhap News Agency reported.
Relations between the two countries have deteriorated since South Korean President Lee Myung Bak made an unprecedented visit last week to a group of South-controlled islets Japan calls Takeshima, and following remarks earlier this week that Emperor Akihito must apologize for Japan’s 1910-1945 colonial rule of the Korean Peninsula if he wishes to visit South Korea.
Nakamura’s visit has been postponed “because Japan-South Korea ties have become strained,” a prefectural official said Thursday, referring to the official protest Tokyo lodged Wednesday over Lee’s remarks.
The governor was scheduled to make a three-day trip to Seoul starting Sunday to visit a travel company and bolster cooperation in attracting South Korean tourists.
Meanwhile, Lee Cheol Hwan, the mayor of Dangjin in South Chungcheong Province, said Thursday he has decided to suspend exchanges with Daisen, Akita Prefecture, because he believes it is useless to cooperate at the regional level when state-level diplomacy is encountering problems, Yonhap reported.
A South Korean official said Thursday that Japan’s anger over President Lee Myung Bak’s demand that Emperor Akihito apologize for Japan’s brutal 35-year-long colonial rule over the Korean Peninsula before making a visit is based on a “misunderstanding,” Yonhap News Agency reported.
“I think there is a misunderstanding Japan has about the intent and context of what the president said,” the unnamed senior presidential official was quoted as saying.