Japan currency swap to hit $70 bil.

Premier Noda returns five Joseon Kingdom books to Seoul

By Park Si-soo

President Lee Myung-bak and Japanese Prime Minister Yoshihiko Noda agreed at a summit Wednesday to expand the size of currency swap contracts between their two countries to $70 billion from $13 billion in an attempt to stabilize the foreign exchange market, according to Cheong Wa Dae.

The two leaders also agreed to make efforts to restart formal negotiations on a free trade pact between the two countries and enhance cooperation to end North Korea’s nuclear programs while improving regional security, the presidential office said.

“We concurred that it is important to strengthen currency cooperation in order to preemptively stabilize financial markets amid deepening uncertainties in the global economy,” Lee said during a joint news conference following the summit. Noda said the deal was expected to “accelerate stabilization.”

Under the swap deal, the Bank of Korea (BOK) said, the two sides will boost the $3 billion won-yen swap facility to $30 billion and open a new $30 billion U.S. dollar-local currency arrangement through October 2012.

It allows Seoul to swap the won for the yen in times of crisis because the yen is one of three key global currencies alongside the U.S. dollar and the euro. Korea has never actually used the swap fund since it has mostly found itself short of dollars.

The neighboring countries separately maintain a $10 billion swap line as part of the Chiang Mai Initiative, a swap arrangement involving the 13 countries in Southeast Asia.

At the height of the 2008 global financial crisis, the BOK agreed with its Japanese counterpart to expand its won-yen swap facility to $20 billion from $3 billion.

Last year, the two central banks closed the extra currency swap line as the global financial markets showed signs of stabilizing. The current $3 billion tranche is set to expire on July 3, 2013.

In a goodwill gesture, Noda brought back five volumes from Korea’s Joseon Kingdom archives (1392-1910). By December, Japan is to return the remaining 1,200 volumes, which it looted during its colonial rule.

Lee and Noda agreed to facilitate dialogue on a Seoul-Tokyo FTA.

“I think that it will be good to have an FTA with Japan at an early date if possible,” Lee said. “However, an FTA should be a win-win for both nations and there could be (different) views by industry. After coordinating these, I think we have to positively seek a Korea-Japan FTA.”

Japan has long pressed to reopen talks on an FTA with Korea, especially in light of Seoul’s agreements with the U.S. and the European Union. The talks have been stalled due in part to South Korea’s large trade deficit with Japan and disagreement over how much Tokyo should open up its agricultural sector.

The two also promised to increase state support for companies producing parts and basic material, which takes up a large portion of bilateral trade.

They reaffirmed that a nuclear-free North Korea is necessary to bring permanent peace to the peninsula and Northeast Asia.

To that end, the two countries promised to work closely with each other during the G20 and ASEAN+3 summits next month and the second Nuclear Security Summit in Seoul next March.

On bilateral relations, Lee stressed that the two countries should move forward “without forgetting history” and former colonial ruler Japan should make greater efforts to resolve issues related to the sad past. Korea was a Japanese colony between 1910 and 1945.

“I remarked many times that moving toward the future without forgetting history is the basis for Korea-Japan relations, and I emphasized that Japan needs to make active efforts over issues stemming from” colonial rule, Lee said.

Noda said that “various problems” may happen between the two countries, but from a broader viewpoint, the two sides should work together to prevent those issues from negatively affecting their ties.

“Various difficult problems have happened so far, but as I said before, we should have a broader viewpoint and wisdom to make sure they won’t have a bad effect on relations between the two countries,” he said.

The summit drew attention regarding any possible change in Japan’s rejection of Korea’s demand that Tokyo compensate the aging Korean women, euphemistically called “comfort women,” who were forced into sexual slavery to serve Japanese soldiers during World War II. But Noda said the issue was not on the agenda.