The exchange of jabs between Japan and South Korea over the territorial dispute in the Sea of Japan will reach a key turning point in October when a temporary bilateral currency swap arrangement comes to an end.
But while the latest quarrel has some calling for the government not to extend elements of the $70 billion agreement, others say an annulment of the emergency dollar swap line would be imprudent, and possibly backfire on Japan.
If Japan were to pull out of the scheme out of retaliation against President Lee Myung Bak's Aug. 10 visit to Takeshima, known as Dokdo in South Korea, which controls the islets, market players could see it as one less safety net for the South Korean won. Foreign investors could quickly pull their funds out of South Korea in the event of global economic volatility.