Six months have passed since last October when South Korea’s Supreme Court ordered Japanese companies including Nippon Steel (ex-Nippon Steel & Sumitomo Metal Corp.) to pay compensation to South Koreans requisitioned to work for the companies during the war. The Japanese government notified the ROK government that if the order causes damage to assets of the Japanese companies, it will immediately take retaliatory measures. Retaliatory measures will apparently include a veto of South Korea’s application to join the Trans-Pacific Partnership (TPP) agreement and refusal to resume talks on Japan-South Korea currency swap agreement and other measures. Some officials in Kasumigaseki, as the Japanese government bureaucracy is called, voice concern: “If retaliatory measures are too obvious, they will be counterproductive.” But the Prime Minister’s Office [Kantei] has turned a deaf ear to such concerns.

In fact, the ROK seized assets of Japanese companies including Nippon Steel that have refused to hold talks on compensation. In response, the Kantei ordered ministries and agencies to draw up a list of retaliatory measures. Those involved in diplomacy are closely watching how retaliatory measures will affect the ROK’s joining the TPP since South Korea has been interested in the agreement for nearly five years. The U.S. Trump administration withdrew from the TPP, but in December 2018 the pact went into effect after the sixth of the 11 signatories, which include Japan and New Zealand, ratified the agreement.  As the total GDP of the 11 countries amounts to 13% of global GDP, South Korea is interested in joining the free-trade economic bloc. However, a new membership requires the unanimous approval of existing member countries. If the ROK applies for membership, the Japanese government intends to invoke its veto. “South Korea has broken agreements with Japan on the issues of the comfort women and former requisitioned workers,” said a Kantei source. “I don’t think the ROK will comply with rules of the TPP; therefore, it is natural for Japan to refuse South Korea’s joining the trade pact.”

Attention is also being paid to Japan’s refusal to resume talks on the currency swap agreement between Japan and South Korea. The Bank of Japan and the Bank of Korea concluded a currency swap agreement in 2005. Until the Lehman shock in 2008, “the agreement helped stabilize exchange,” according to a Bank of Japan senior official. However, since then bilateral relations have deteriorated and the two countries have suspended talks on extending the agreement. As a result, the agreement expired and the two countries have taken no remedial measures to date. There remain concerns about the global economy’s slowdown and violent exchange rate fluctuations, but a Bank of Japan senior official said with resignation, “We can’t help the situation as the Japan-South Korea relationship is at its worst in the postwar period.”