(Sankei: January 14, 2016 – Top play)
On Jan. 13, a high-ranking Japanese government official announced that Japan has decided that it would agree to reestablish a Japan-South Korea currency swap agreement, which would enable exchange of currency during financial emergencies, if it received a formal request from the South Korean government. There are causes for concern in terms of both security and the economy in the East Asia region, such as North Korea’s nuclear program and the deterioration of the Chinese economy. With an eye on the stability of the region, the Japanese government decided it should agree if it received a formal request from its neighbor. If the agreement were reestablished, it would be the first time for such a program to operate between the two countries since February last year.
There is a risk that the economic recession in China could have a major impact on the South Korean economy, and the Japanese government has decided that a currency swap agreement would be effective in preventing cross-border spread of economic deterioration. If an economic crisis were to break out and South Korea had a shortfall in reserves of U.S. dollars or Japanese yen, Japan would exchange currency with it with an eye to stabilizing that nation’s economy.
The Japanese government will consider the currency ceiling and other details of the swap framework after receiving a proposal from the South Korean government to restart the agreement. If an agreement were reached, Japan would mull holding a signing ceremony with South Korea at a finance ministers’ meeting or a summit meeting on the sidelines of an international conference.
In a currency swap agreement, an economically strong country supports a neighboring country. In the case of a Japan-South Korea agreement, Japan would assist South Korea.
Japan and South Korea formed a currency swap agreement in 2001 and raised the ceiling to as much as $70 billion in 2011 at the time of the European debt crisis.
The agreement was scaled back, however, when bilateral ties grew chilly after Lee Myung-bak, the South Korean president at that time, landed on Takeshima (Okinoshima Town, Shimane Prefecture) in 2012. Japan did not receive a request from South Korea to extend the agreement before the framework was to expire in February 2015 and so the agreement ended.
In October 2015, South Korea’s Federation of Korean Industries called on Keidanren (Japan Business Federation) to endeavor to have the agreement restarted.
With the conclusion of the Japan-South Korea agreement on the comfort women issue, Japan believes a “smooth bilateral partnership has become possible” [and could be used] to address such matters as the North Korean nuclear test, according to sources close to the Prime Minister. South Korean President Park Geun-hye has been engaged in a joint struggle alongside Chinese President Xi Jinping over differences [with Japan] in perspectives on history. Another aim of the Japanese government is to use a currency swap to further close the distance with the South Korean leader.
However, Japan does not intend to respond to unofficial inquiries about restarting the agreement; it plans to wait for an official request.