Japan and South Korea held their first finance leaders’ meeting in seven years on Tuesday and agreed to resume regular dialogue as tensions in the wider region and slowing growth prod them to increase co-operation and mend strained relations.
The resumption of bilateral financial discussions comes ahead of Japanese Prime Minister Fumio Kishida’s planned visit to South Korea on Sunday and Monday for talks with President Yoon Suk Yeol.
It also came as Asian policymakers, gathering for the annual Asian Development Bank (ADB) meeting this week in the South Korean city of Incheon, discussed regional economic challenges and ways to beef up buffers against various shocks.
In a joint statement issued after their meeting on Tuesday, Asian finance leaders warned of risks to the region’s economy and called for countries to stay vigilant to potential spillovers from the recent U.S. and European banking sector turmoil.
“Japan and South Korea are important neighbours that must cooperate to address various challenges surrounding the global economy, as well as the regional and international community,” Japanese Finance Minister Shunichi Suzuki said at the meeting with his South Korean counterpart Choo Kyung-ho.
“As for geo-political challenges, we’re experiencing incidents like North Korea’s nuclear missile development and Russia’s invasion of Ukraine. Japan sees these as unacceptable, and something the two countries must address together,” he said.
Choo said the two countries can strengthen private and government partnerships in high-tech industries such as semiconductors and batteries. Japan and South Korea will resume regular finance dialogue, likely to be held annually, at “an appropriate timing,” Suzuki told reporters after the bilateral meeting.
Choo is expected to visit Japan this year for another meeting with Suzuki, South Korea’s finance ministry said. Relations between the two North Asian U.S. allies have been strained in the past over disputes dating to Japan’s 1910-1945 occupation of Korea. Washington has pressed both countries to resolve these disputes to better counter rising threats from China and North Korea and other regional challenges.
Defusing risks Asia’s economy has been a bright spot in the world with the International Monetary Fund (IMF) upgrading this year’s growth forecast for the region thanks to China’s post-COVID rebound.
But the recent failures of three U.S. banks have alarmed policymakers about the possibility of market turbulence as a result of aggressive U.S. interest rate rises.
“The risks Asia faces are smaller than those for other regions because its financial institutions have sufficient buffers, and their exposure to problematic banks is limited,” Bank of Japan Governor Kazuo Ueda told a news conference.
“But policymakers must guard against possible spillovers from uncertainties over U.S. and European economies,” he said. Building stronger buffers against shocks became a key topic of debate at a finance leaders’ meeting of the ASEAN+3 – which comprises the 10-member Association of Southeast Asian Nations (ASEAN) and Japan, China and South Korea, on Tuesday.
At the meeting, the finance leaders agreed to create a financial facility that allows members to access funds rapidly in the event of shocks such as a pandemic or a natural disaster.
“The crisis may not be purely financial. It could be triggered by a pandemic, which is non-financial or a natural disaster that can create a domino effect,” Indonesian Finance Minister Sri Mulyani Indrawati, co-chair of the meeting, told a news conference. “So, these are all the shocks that are potentially affecting the stability of the economy as well as even triggering a financial crisis,” she said in explaining the need for stronger safeguards against future risks.