Published: Thu, July 18, 2019
Markets | By Otis Pena

S.Korean political leaders vow to work together to resolve Japan dispute

S.Korean political leaders vow to work together to resolve Japan dispute

South Korea's central bank delivered a surprise interest rate cut, and shaved this year's growth forecast to the lowest in a decade, as a brewing dispute with Japan piled more pressure on the trade-dependent economy.

The Bank of Korea announced its Monetary Policy Board voted to cut the base rate by 25 basis points to 1.50%, without elaborating, ahead of expectations in a Reuters poll that the board would lower the rate next month.

The central bank also trimmed down this year's growth outlook to 2.2 percent from an earlier projection of 2.5 percent in April when it slashed its outlook to 2.5 percent from 2.6 percent three months earlier following a contraction in gross domestic product (GDP) in the first quarter of this year.

It joins a growing number of central banks worldwide that reduced borrowing costs to shore up their economies in the face of a prolonged trade dispute between the U.S. and China.

On Wednesday, David Stilwell, the U.S. assistant secretary of state for East Asian and Pacific affairs, vowed to support South Korea and Japan to resolve the dispute, stressing the importance of the two USA allies' cooperation in tackling regional issues.

South Korea's Supreme Court a year ago ordered two Japanese companies to compensate the wartime workers in a ruling that Japan said violated global law.

"Our economic assessment reflected Japan's imposition of export restrictions as they will have considerable effects on our economy", he added, referring to Japan's curbs on exports to South Korea of key materials for chip and display production. Lee said the bank's monetary policymakers assessed how the trade dispute could affect growth at the macroeconomic level.

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South Korea's President Moon Jae-in and leaders of the country's major political parties vowed on Thursday (July 18) to work together to resolve a worsening political and economic dispute with Japan.

Tokyo says the materials affected by the export controls can be sent only to trustworthy trading partners.

South Korea is also bracing for the possibility that Japan will take further steps by removing it from a 27-country "whitelist" receiving preferential treatment in trade.

With no signs of a thaw of their relations, South Korea called for United States mediation to reverse Tokyo's export restrictions while preparing to raise the issue at a WTO meeting, slated for earlier next month.

South Korea and Japan are both U.S. allies, democracies and market economies faced with an overbearing China and nuclear-armed North Korea.

The bank projected South Korea's economy to grow 2.5% in 2020, when it expects the private sector slowdown to ease.

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