South Korea, Japan agree to extend $10b currency swap for three more years

South Korea and Japan have agreed to extend their $10 billion currency swap arrangement by three years to November 2029, ahead of its scheduled expiration this year. The two countries decided to maintain the existing contract size as a sign of continued financial cooperation.

The Ministry of Economy and Finance said Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il reached the agreement with Japanese Finance Minister Katayama Satsuki at a meeting in Bangkok, Thailand, on Thursday (local time).

Lee is visiting Thailand to attend the IMF-World Bank Annual Meetings and the G20 and G7 finance ministers and central bank governors meetings.

The two finance ministers agreed that their respective foreign exchange authorities have secured sufficient foreign-currency liquidity. They also agreed that the currency swap holds symbolic importance as a pillar of South Korea-Japan financial cooperation.

The bilateral currency swap launched in 2001 at $2 billion and expanded to $70 billion by 2011 as the two countries navigated the global financial crisis and the European debt crisis. It was gradually scaled back as relations between Seoul and Tokyo soured, and ground to a halt in February 2015 when the last remaining $10 billion contract expired.

The arrangement was revived in December 2023, more than eight years later, after the two finance ministers agreed at their June 2023 meeting to restore it. The new contract, a central bank-to-central bank arrangement denominated entirely in US dollars, was set for a three-year term expiring this year.

Unlike the previous structure, which mixed won, yen and dollar exchanges, the revived swap is based entirely on the US dollar. Under the arrangement, South Korea provides won and borrows dollars from Japan, while Japan provides yen and borrows dollars from South Korea.

The two sides also agreed to maintain cooperation between their finance ministries. Lee and Katayama agreed to hold the next bilateral finance ministers' meeting in South Korea as soon as possible, in line with an agreement reached at the 10th South Korea-Japan Finance Ministers' Meeting in Tokyo in March.