South Korea, Japan to let $10bn currency swap pact expire

SEOUL: South Korea and Japan have agreed to let a $10-billion currency swap agreement expire this month after 14 years, amid diplomatic tension between the neighbours.

South Korean policymakers, however, denied that deterioration in ties between the two countries was behind the decision to let the agreement lapse on Feb. 23. Rather, the swap deal was ending because both economies are stable.

"Political issues were not even considered during the negotiation process," a Bank of Korea official told Reuters after the central bank's announcement that the pact was ending.

"We came to the conclusion that the countries could withstand current economic situations without the swap," said the official who declined to be identified, as he was not authorised to speak on the matter.

Separately, South Korea and Japan said on Monday they would hold a summit of finance ministers in Tokyo on May 23, although the agenda has not been set. The talks, last held in 2012, were to have taken place every year under a 2006 agreement.

The swap deal was launched in 2001 to help in the event of a financial crisis and its size, which peaked at $70 billion in 2011, decreased from 2012, when then-South Korean president Lee Myung-bak visited disputed islets, known as Dokdo in Korean and Takeshima in Japanese.

Tension persists between the two countries, and South Korean President Park Geun-hye and Japanese Prime Minister Shinzo Abe have not held a summit since taking office.

Analysts have said there would be minimal financial impact from the expiry of the swap pact, as it had never been used.

In recent years, South Korea has signed swap agreements with countries including China and Australia, and will have 90.5 trillion won ($82.2 billion) worth of swap deals with five countries once the line with Japan expires.

The swap with Japan is South Korea's only two-way swap line denominated in US dollars.

Japanese government sources on Saturday told Reuters Tokyo was considering letting the swap agreement end unless Seoul requested otherwise.