TOKYO (MNI) – Amid the long-standing territorial dispute over small
islands, Japan and South Korea have agreed not to extend a temporary
large increase in their bilateral yen-won swap agreement, the Ministry
of Finance and the Bank of Japan said on Tuesday.

The two countries have also agreed to “cooperate in an appropriate
manner as the need arises while closely monitoring the global economic
condition as well as that of both countries,” the Japanese authorities
said.

Finance Minister Koriki Jojima told reporters that he will meet his
South Korean counterpart in Tokyo on Thursday during the International
Monetary Fund-World Bank annual meetings here “to discuss global
economic conditions, not the swap agreement.”

He stressed that economic and financial conditions in the two
countries are sound, which is why Japan does not need to stand by to
provide large amounts of liquidity to South Korea any longer, adding
that the decision was made based on economic reality not on political
concerns.

Last year, Tokyo and Seoul increased the bilateral currency swap
agreement to $70 billion from $13 billion to ensure South Korea had
ample funds amid global financial market turmoil caused by the European
debt crisis.

Of the total $70 billion swap agreement, the Bank of Japan agreed
with the Bank of Korea last October to boost their yen-won swap accord
to a maximum $30 billion U.S. dollar equivalent from $3 billion.

The temporary increase is effective until the end of October this
year.

At the height of the European crisis, some lenders in emerging
economies — including South Korea, Thailand, Indonesia and Brazil —
found that European banks they rely on for funding were withdrawing
their loans in the face of rising credit risks in Europe.

The $13 billion long-term yen-won swap agreement, which is designed
for a non-crisis situation, took effect in May 2005, with a view to
stabilizing regional financial markets through supplying short-term
liquidity.

The MOF and the BOJ issued a joint statement as follows:

“The Ministry of Finance of Japan and the Bank of Japan announce,
in coordination with the Ministry of Strategy and Finance of Korea and
the Bank of Korea, the expiration of the temporary measure to increase
the maximum amount of the bilateral currency swap arrangements as of
October 31, 2012, as scheduled.

“The finance ministries and the central banks of both countries
believe that this measure has significantly contributed to mitigating
adverse influences of the global financial turmoil on the two economies
and also to securing and ensuring stability of not only the Korean
foreign exchange market but also the regional financial markets. The
four parties evaluate the measure as mutually beneficial.

“Given the stable financial markets and the sound macroeconomic
condition of both countries, they concluded that the extension of the
increase of the bilateral swap arrangements is unnecessary. They also
agreed that they will cooperate in an appropriate manner as the need
arises while closely monitoring the global economic condition as well as
that of both countries.”

Tokyo has protested a visit by South Korean President Lee Myung-bak
in August to Takeshima — or Dokdo in Korean — a group of islets
between the two countries controlled by South Korea but claimed by
Japan.

Japanese Prime Minister Yoshihiko Noda has also urged Lee to
apologize for controversial remarks about Emperor Akihito.

Lee said the emperor would not be welcome in South Korea without a
direct acknowledgment of guilt for Japan’s colonial rule of the Korean
Peninsula from 1910 to 1945. Akihito acceded to the throne in 1989.

tokyo@marketnews.com
**MNI Tokyo Newsroom: 81-3-6860-4820 **

[TOPICS: M$A$$$,M$J$$$,MGJ$$$,MMJBJ$]