Japan's deteriorating ties with South Korea over disagreements on their wartime history were highlighted by Tokyo last week when the government ended preferential treatment for the exporting of key materials to its Asian neighbor that are vital in the manufacturing of semiconductors and digital displays.

The government may be trying to hamstring South Korea's mainstay industries by playing the trade card to bring it to the negotiating table, but the tactic could backfire as many domestic companies do business with partners in the country.

A number of firms said they are anxiously watching developments, noting it remains unclear if the newly-introduced regulations will actually hinder trade between the two nations. Under the new regulations, at the longest, it could possibly take 90 days for Japanese exporters to get official approval on certain key items bound for South Korea.