SEOUL – Japan and South Korea agreed Saturday to launch talks on resuming a currency swap deal, reflecting newly cooperative relations between the two neighbors.
The two began operating a swap agreement in 2001, but testy ties precluded any effort to extend or renew it when it expired in February last year.
The deal lets one nation obtain dollars by giving its currency to the other. This serves as a cushion at times of market instability.
In talks between financial officials of the two countries, the South Korean government proposed to strengthen bilateral economic ties and establish a new swap arrangement as a token of cooperation, the Japanese Finance Ministry said.
The bilateral currency swap agreement “contributes to enhancing the regional financial stability” amid growing uncertainty in the global economy such as Britain’s decision to exit from the European Union, the ministry said in a press release.
Japanese Finance Minister Taro Aso and South Korean Strategy and Finance Minister Yoo Il-ho shared the view that “the global economy is on a gradual recovery path but remains weaker than desirable” due to persistent downside risks, it said.
The talks in Seoul by the two countries’ finance ministers follows a similar meeting in May last year in Tokyo, which resumed after a hiatus of more than two years due to tensions over a territorial row and different interpretations of history.
The bilateral relationship improved further recently following progress made toward ending a protracted dispute over Korean women and girls forced to work in wartime brothels for the Imperial Japanese military, with Japan disbursing ¥1 billion to a South Korean foundation to support the former so-called comfort women.
The dialogue was held as the two neighboring countries face such challenges as a slowdown in emerging economies, including China, while the financial markets remain volatile due partly to speculation about an interest rate hike in the United States.
The currency swap deal, formed in 2001, was expanded in 2011 to $70 billion from $13 billion to ensure South Korea had access to sufficient dollar funds amid the eurozone sovereign debt crisis.
The one-year expansion expired in 2012 and the overall size of the swap deal was cut back to $13 billion. Tokyo and Seoul then reduced it to $10 billion in 2013.