Japan suspends forex swap talks with South Korea over statue

[TOKYO] Japan has suspended talks with South Korea over a foreign currency swap arrangement and temporarily recalled its ambassador to the country in protest against the installation of a statue symbolising so-called comfort women in the South Korean city of Busan.

Japanese Chief Cabinet Secretary Yoshihide Suga told reporters in Tokyo on Friday that the statue was a violation of the Vienna Convention. Japan had previously called for the statue to be taken down, saying it goes against the spirit of an agreement between the two countries in late 2015 to solve the issue of the women that has dogged relations for decades.

"This is extremely regrettable," Mr Suga said. "This will have a negative effect on bilateral relations." South Korea's finance ministry hasn't officially heard from Japan on the matter and is seeking information from the Japanese government, said an official at the ministry, who declined to be identified as he isn't authorised to comment publicly.

A previous swap between the two neighbours expired in early 2015. Some members of Prime Minister Shinzo Abe's ruling Liberal Democratic Party have sought to make any foreign exchange agreement conditional on removing a separate statue in front of the Japanese embassy in Seoul.

Finance Minister Taro Aso said in December that there was no way to negotiate a deal because of the political turmoil surrounding a scandal that led to the impeachment of South Korean President Park Geun-hye.

Economic and diplomatic relations between the two nations remain prone to problems stemming from Japan's colonial occupation of the Korean peninsula. Mr Abe made a landmark apology over the women coerced into Japanese military brothels before and during World War II in December 2015, and his government agreed to provide 1 billion yen (S$12.3 million) to a fund for compensating victims.

Historians say anywhere from 50,000 to 200,000 women - many of them Korean - served in Japan's military brothels across Asia. Japan apologised in 1993 and set up a compensation fund that was rejected by some victims because it was privately funded.

BLOOMBERG