TOKYO - Japan and South Korea will not renew a US$57 billion (S$70 billion) currency swap facility designed to protect their economies against financial crisis, a decision they said was not related to a territorial dispute that has cast a pall over ties between the neighbours.

Officials from both countries were quick to stress that yesterday's decision not to extend the facility, set up last October as concerns mounted over the US budget deficit and Greece's possible default, had been made purely on economic grounds.

"Japan and South Korea reached a conclusion that extension would not be needed, while sharing a view that financial markets have stabilised and the macro-economic situation has become healthy," Japanese Finance Minister Koriki Jojima said in Tokyo.

He added that the decision to let the swap deal expire would not prevent further cooperation with South Korea.

The Bank of Korea said separately that the decision reflected the nation's "improved resilience to external shocks".

The value of bilateral currency swap arrangements between the two will return to US$13 billion at the end of the month, from US$70 billion.

A political row broke out between Seoul and Tokyo in August after South Korean President Lee Myung Bak visited islands called Dokdo in South Korea and Takeshima in Japan, which both countries claim sovereignty over.

In a signal that economic links are still open, a Japanese finance ministry official said yesterday that the government would consider buying South Korean government bonds, although no decision had been made.

REUTERS, BLOOMBERG