South Korean President Moon Jae-in has reiterated calls for Japan to withdraw export restrictions imposed against his country, while urging South Korean companies to prepare for all possibilities, including a prolonged trade stand-off.
Mr Moon told leaders from South Korea's top 30 conglomerates yesterday that the government is doing its best to find a diplomatic solution to the "unprecedented emergency situation", and will seek international cooperation to cope with what is deemed as Tokyo's retaliation to Seoul's handling of an earlier row over their wartime past.
"I hope the Japanese government will respond and stop going towards a dead end," he said.
"For political reasons, the Japanese government took measures that will damage the Korean economy... that is never desirable for the friendship and security cooperation between our two countries."
Restrictions on Japan's export of three chemicals vital to South Korean chipmakers went into effect last Thursday.
This would prolong the process of seeking approval for export to South Korea, essentially dealing a huge blow to companies such as Samsung Electronics and SK Hynix, which rely heavily on Japan for the materials. Japan produces up to 90 per cent of the world's supply of these chemicals.
Mr Moon promised to provide active support for domestic production of the sanctioned materials, while urging companies to rely less on imports for core technologies, devices and materials.
He also stressed the need to establish a joint emergency response system to allow the government and the corporate sector to combine efforts against Japan's move.
A spokesman for the presidential Blue House said business leaders - including SK Group chairman Chey Tae-won, Hyundai Motor executive vice-chairman Chung Eui-sun and LG chairman Koo Kwang-mo - agreed with the need to work closely with relevant ministries to devise various measures to cope with Japan's export curbs.
They also stressed the need to diversify supply chains and tap the expertise of other countries such as Germany and Russia, the spokesman added.
But in interviews with the media, some business representatives voiced concern that the meeting with Mr Moon could send the wrong message to Japan and strain their ties with Japanese partners.
One representative told The Korea Herald that it is "always risky for a company to be involved between governments".
Another told The Korea Times that yesterday's meeting may be seen as "Korea having one voice that Japan's move is unfair, but at the same time sending a signal to Japanese partners that firms are blending politics into their businesses".
Experts told The Straits Times that the issue requires a diplomatic solution as it stems from a row over their shared history.
Tension between the two neighbours soared last October after South Korea's Supreme Court ordered Japanese steelmakers to compensate wartime forced labourers from South Korea. The issue escalated with Seoul ordering the seizure of local assets of Japanese firms and refusing to form an arbitration panel to resolve the dispute.
Observers have warned that Japan, which maintains that all war-related issues were settled in a 1965 treaty, would one day retaliate.
The Asan Institute for Policy Studies senior fellow Shin Beom-chul said Japan is trying to exert pressure on South Korea to bring about change on the forced labour issue. He expects the two sides to meet soon, at least at the foreign ministers' level, to discuss the situation.
"It is possible that they can come to a compromise, but it will take some time. Both sides know they are not enemies, even though their political positions are very complicated. Eventually, they will agree, at a certain level," he added.