South, Japan Agree to Extend $10 Billion Currency Swap for 3 Years

▲ Deputy Prime Minister Lee Hyung-il and Japanese Finance Minister Satsuki Katayama

South Korea and Japan have agreed to extend their currency swap arrangement, which was set to expire at the end of next month, for another three years.

The Ministry of Economy and Finance announced that Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il held a bilateral meeting with Japanese Finance Minister Satsuki Katayama in Bangkok, Thailand—where they are visiting to attend the G20 and G7 Finance Ministers' Meetings and the IMF-World Bank Annual Meetings—and agreed on the extension of the expiring South Korea-Japan currency swap.

The Ministry of Economy and Finance explained that Deputy Prime Minister Lee and Finance Minister Katayama shared the view that both countries' foreign exchange authorities have secured sufficient foreign currency liquidity, and reached the decision in consideration of the importance the currency swap holds as a symbol of financial cooperation and coordination between South Korea and Japan.

South Korea and Japan launched a three-year currency swap worth USD 10 billion on December 1, 2023, which was originally scheduled to mature at the end of November this year.

An official from the Ministry of Economy and Finance explained, "It will be extended for three years until November 2029," adding, "The scale of the currency swap will remain unchanged."

The South Korea-Japan currency swap started at USD 2 billion in 2001 and expanded to USD 70 billion in 2011 amid the global financial crisis and the European fiscal crisis.

Later, as bilateral relations strained, the size shrank, and the remaining USD 10 billion contract expired in February 2015, suspending the arrangement for over eight years.

Then, the currency swap was restored in 2023 through an agreement between then-Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho and then-Japanese Finance Minister Shunichi Suzuki.

At the time, it drew attention for deciding to base the arrangement entirely on U.S. dollars rather than exchanging Korean won and Japanese yen.

Currency swaps prior to 2023 were in a hybrid format where South Korea deposited won and borrowed both yen and dollars from the Japanese side.

The current currency swap is structured so that South Korea deposits won to borrow U.S. dollars from the Japanese side, and conversely, when Japan deposits yen, South Korea borrows U.S. dollars.

In addition, in accordance with the agreement reached at the 10th South Korea-Japan Finance Ministers' Meeting held in Tokyo, Japan, in March of this year, both sides shared the view to hold the next South Korea-Japan Finance Ministers' Meeting in South Korea at the earliest possible date.

(Photo provided by the Ministry of Economy and Finance, Yonhap News)

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