Japan, South Korea agree to extend $10 billion currency swap arrangement

Japan and South Korea agreed Thursday to extend their $10 billion currency swap arrangement, reportedly for another three years, preserving a source of U.S. dollars that either state can draw on during a financial emergency.

Finance Minister Satsuki Katayama and her South Korean counterpart Lee Hyoung-il reached the agreement in Bangkok, where they were attending international financial meetings.

Both ministers acknowledged that their countries had sufficient foreign currency liquidity but recognized the swap’s significance as a symbol of sustained cooperation.

The swap agreement, set to expire at the end of November, is expected to run through November 2029, with its size unchanged. Japan’s Finance Ministry did not immediately confirm its duration on Friday.

The extension comes as Seoul faces substantial U.S. investment commitments under its tariff deal with Washington last year. The $350 billion package includes $200 billion in strategic investments, capped at $20 billion per calendar year, and $150 billion for shipbuilding.

Buying dollars to fund the investment deal could weaken the South Korean currency, making imports and dollar-denominated debts more expensive. The extension preserves an emergency source of dollars for Seoul, which has fewer financial safeguards and smaller foreign exchange reserves than Tokyo.

The swap works as an emergency borrowing facility. If South Korea faces dollar shortages, its authorities can exchange won for dollars held in Japan’s foreign exchange reserves. Japan can similarly obtain dollars from South Korea in exchange for yen.

Transactions are temporary, with the borrowed dollars to be returned later.

Access to dollars matters because banks and businesses need them to repay overseas debts and make international payments. During financial turmoil, lenders may become reluctant to supply dollars, making those obligations harder to meet.

The previous bilateral swap arrangement expired without being renewed in February 2015, amid strained relations over historical and territorial disputes. Both governments at the time explained that the decision reflected economic and financial considerations.

The two countries agreed to revive the swap deal in 2023 as ties gradually improved, signing the current three-year agreement in December that year.