TOKYO: Japan will slash the scope of its currency swap deal with South Korea, the Finance Ministry said Tuesday, but distanced the move from a still-fresh territorial dispute.
"The Finance Ministry and the Bank of Japan will end the temporary expansion of the Japan-South Korea currency swap deal on October 31, 2012, as scheduled," the Japanese finance ministry said in a statement.
Tokyo and Seoul expanded the swap contract to $70 billion from $13 billion for one year through this month to help South Korea shield its currency from excessive volatility on forex markets caused by the debt crisis in Europe.
Japan had said in August it was considering pulling the plug on the extension amid a row between Tokyo and Seoul when South Korean President Lee Myung-bak flew to territory claimed by both countries.
His visit to islands known as the Dokdos in Korean and Takeshimas in Japanese saw a sudden frosting of ties and a diplomatic war of words in which historical wounds were reopened.
However, Seoul and Tokyo were at pains Tuesday to de-couple the two issues.
"This decision was made purely based on economic and financial factors," Japan's Finance Minister Koriki Jojima told reporters.
"Both countries concluded there is no need to extend the expansion of the Japan-South Korea currency swap deal because the nations' financial markets are stable and the macro economy is healthy at the moment," Japan's finance ministry said.
In a statement issued in Seoul, the Bank of Korea said the country's economy was robust.
"The world's top three credit ratings agencies have recently upgraded ratings on South Korea, the nation's financial health has considerably improved and financial markets at home and abroad are relatively stable."
A senior BoK official told AFP: "It was not like one country suggested to end the deal unilaterally... We are not politicians.
"The swap deal achieved its intended results... Now financial markets in both countries are quite stable so we (both countries) saw no need to further extend the deal."
Jojima and his South Korean counterpart Bahk Jae-wan will meet on Thursday in Tokyo, the Japanese ministry said.
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