Japan, South Korea may discuss FX swap deal, cautious views linger

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan and South Korea may discuss this month the fate of a bilateral currency swap arrangement that expired years ago, Finance Minister Shunichi Suzuki said on Friday, while some officials expressed caution about expectations for a deal.

The two Asian neighbours are arranging for Suzuki and his South Korean counterpart Choo Kyung-ho to hold the bilateral finance dialogue on June 29.

The Japan-South Korea currency swap arrangement, once a symbol of the bilateral financial cooperation, expired in February 2015 amid worsening relations, having served as a backstop against any potential currency crisis.

The countries’ finance chiefs will discuss global and regional economies, coordination at G7 and G20, bilateral and regional financial cooperation and bilateral cooperation in taxation and customs, and infrastructure investment elsewhere.

“It could include a Japan-South Korea swap arrangement,” Suzuki said. “That’s all I can say at the moment, as we are making final arrangements towards June 29.”

A regional multilateral currency swap scheme dubbed Chiang Mai Initiative Multilateralisation and other bilateral swap arrangements, which play a vital role as financial safety nets, will also likely be on the agenda.

A Japanese government official had said they did not know how talks on the bilateral currency swap arrangement would turn out.

“Japan may be cautious out of concern that the swap arrangement may get bogged down again amid diplomatic rows. Still, they both could strike a deal given the role it plays in stabilising markets at a time of crisis,” said Toru Nishihama, emerging market economist at Dai-ichi Life Research Institute.

The finance dialogue would be part of the two countries’ efforts to mend strained relations to counter North Korea’s missile threat and geopolitical tensions in the Asian region.

It will mark the revival of regular dialogue between the two countries’ finance ministers, which they agreed to revive during their meeting in early May and had been suspended since 2016.

(Reporting by Tetsushi Kajimoto; Editing and Christopher Cushing, Shri Navaratnam and Gerry Doyle)