Japan and South Korea agreed to end part of their currency swap contract next month as scheduled, reducing its overall size to $10 billion from $13 billion, the Finance Ministry said Monday.
The two countries “have reached the conclusion that they will not extend the term of yen-won swaps between their central banks worth $3 billion, which will expire July 3,” the ministry said.
The currency swap contract was expanded to $70 billion from $13 billion in October 2011 as a one-year measure to ensure South Korea had access to enough dollar funds to withstand the market turbulence generated by the eurozone’s sovereign debt crisis. The one-year deal was allowed to expire in October 2012 without being extended, allowing the reversion to $13 billion.
At the time, there was speculation that the deal’s fate was linked to the bilateral friction that erupted in August when then South Korean President Lee Myung-bak made an unprecedented visit to one of the South Korean-controlled islets claimed by Japan.