Japan and South Korea to extend $10 billion swap — The Japan Times

Japan and South Korea have agreed to extend a $10 billion currency swap agreement. The agreement was reached in Bangkok, Thailand, by Japanese Finance Minister Satsuki Katayama and her South Korean counterpart Lee Hyeon-il during international financial meetings.

As The Japan Times reports, the current agreement expires at the end of November. It is expected to be extended for another three years, until November 2029, without changing the limit. At the same time, Japan’s Ministry of Finance did not confirm the duration of the new agreement period.

A reserve for financial stress

A currency swap is an emergency borrowing mechanism. In the event of a dollar shortage, South Korea will be able to exchange won for dollars from Japan’s foreign exchange reserves. Japan will likewise be able to obtain dollars in South Korea by providing yen. Such operations are temporary: the borrowed dollars must be returned later.

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The ministers of both countries acknowledged that their states currently have sufficient foreign currency liquidity, but stressed the importance of the swap as a symbol of long-term cooperation. Access to dollars is important for banks and companies that settle external debts and make international payments.

The agreement was restored in 2023

The previous bilateral swap agreement ceased to be in force in February 2015 without an extension amid strained relations between the countries over historical and territorial disputes. Japan and South Korea agreed to restore the mechanism in 2023, when their relations began to improve, and signed the current three-year agreement in December of that year.

The extension of the arrangement comes amid Seoul’s substantial investment commitments to the United States under last year’s tariff agreement with Washington. The $350 billion package provides for $200 billion in strategic investments, capped at $20 billion per calendar year, and another $150 billion for shipbuilding.