Japan, S. Korea to curtail currency swap accord amid isle row

TOKYO – Japan and South Korea will reduce the size of their currency swap agreement later this month, Japanese Finance Minister Koriki Jojima said on Tuesday, amid growing tensions between the two countries over a territorial dispute.

Jojima also told reporters that he will meet with South Korean Strategy and Finance Minister Bahk Jae Wan on Thursday in Tokyo on the sidelines of the annual meetings of the International Monetary Fund and the World Bank, which started earlier Tuesday.

The two countries had expanded the swap contract to $70 billion from $13 billion for one year through this month, as Japan helped South Korea shield its currency, the won, from any excessive volatility in financial markets due to the sovereign debt crisis in Europe.

The Asian neighbours have concluded that they do not need to extend the arrangement for the expanded swap as they face "stability in the financial markets of both countries and sound macroeconomic conditions," the Japanese Finance Ministry said in its statement.

Jojima underscored that the decision was made as the countries "purely took into account economic and financial factors," denying it was affected by any political deadlock. He added that his meeting with Bahk will not particularly focus on the issue of swap.

Relations between Japan and South Korea have soured since August when South Korean President Lee Myung Bak visited one of the South Korea-controlled islands claimed by Japan, while seeking an apology from Japan's emperor for the country's past colonial rule of the Korean Peninsula, a move that displeased Japanese lawmakers, including Prime Minister Yoshihiko Noda. -- KYODO