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 cooperation 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, discuss regional economic challenges and ways to beef up buffers against various shocks.

“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 US 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.

Under Yoon, South Korea has resumed trilateral military drills and agreed to more intelligence sharing on issues like tracking ballistic missile launches from North Korea.

While Japan and South Korea mend strained ties, relations with China are trickier with Beijing’s increasingly aggressive actions near Taiwan causing tensions that cast a shadow over the finance leaders’ gatherings.

Japanese and South Korean delegates also met with China in a separate meeting on Tuesday.

China’s finance minister and central bank head were not present at a trilateral meeting, with their deputies attending instead.

Analysts say the move reflects China’s dissatisfaction over South Korea’s joint statement with the United States calling for the need for peace and stability in the Taiwan Strait.

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 US banks have alarmed policymakers about the possibility of market turbulence as a result of aggressive US interest rate rises.

The sale of First Republic Bank’s assets to JPMorgan Chase has left markets anxious about other financial risks, even if the initial response has been reasonably positive.

Building stronger buffers against shocks will be among key topics of debate when finance leaders the ASEAN+3 - which comprises the 10-member Association of Southeast Asian Nations (ASEAN) and Japan, China and South Korea - meeting on Tuesday.

Japan, which co-chairs this year's ASEAN+3 meeting with Indonesia, hopes to discuss beefing up a network of currency swap lines called the Chiang Mai Initiative Multilateralisation (CMIM).

Specifically, Tokyo is keen to propose a facility that enhances the use of existing currency swap lines and allows members to tap funds in emergencies, said three sources with direct knowledge of the matter.

Indonesian Finance Minister Sri Mulyani Indrawati, co-chair of the meeting, said the cooperation of member states on the CMIM and other initiatives was vital for regional development and prosperity.