South Korea says currency swap accord with Japan desirable

By Hyonhee Shin and Tetsushi Kajimoto
FILE PHOTO: Police officer stands guard near Japan and South Korea national flags at a hotel in Tokyo

By Hyonhee Shin and Tetsushi Kajimoto

SEOUL/TOKYO (Reuters) - South Korea's prime minister said on Friday said restoring a bilateral currency swap facility with Japan would be desirable as it would strengthen trade and financial stability, amid concerns over liquidity resulting from the coronavirus crisis.

The comment from Prime Minister Chung Sye-kyun comes as South Korea's central bank prepares to inject dollars into local financial markets next week using a currency swap with the U.S. Federal Reserve to help ease a growing dollar shortage in onshore markets.

"A currency swap with Japan previously was in place for a long time and it made big contributions to the currency market so it would be right to establish a currency swap," Chung told reporters.

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

Talks over a new swap accord were suspended in January 2017 when bilateral ties became strained by a row over comfort women, a euphemism for women, many of whom were Korean, who were forced into brothels for Japanese soldiers during the World War Two.

When asked by journalists how Japan would respond to any request from South Korea for a new bilateral swap line, Japanese Finance Minister Taro Aso shrugged off the question.

"I cannot answer such a hypothetical question," Aso said.

A finance ministry official in charge of the matter said the two sides were keeping in close communication on various issues, but there was no request from Seoul for resumption of the talks on a swap accord.

"There's no change to Japan's stance that it won't make a move unless South Korea asks for resumption of the negotiations," the official said.

(Writing by Cynthia Kim & Tetsushi Kajimoto; Editing by Shri Navaratnam & Simon Cameron-Moore)