S.Korea cuts key interest rate to 1.5%

US Assistant Secretary of State for East Asian and Pacific Affairs David Stilwell meeting South Korean Foreign Minister Kang Kyung-wha on the last day of his three-day visit to Seoul yesterday

"We have to deal with this situation with more tension than ever because downside risks widened at home and overseas due to persistent trade disputes, Japan's export regulations, sluggish semiconductor business and weak corporate investment".

South Korea is one of the world's biggest chipmakers.

The restrictions affect key materials used in the production of semiconductors and display panels.

The leaders said they would seek to strengthen South Korea's competitive edge in its tech industries as well as shore up the fundamentals of the national economy.

"Japan's export regulations were partly reflected in macroeconomic assessment, including growth", the governor said.

South Korea has rejected the Japanese claims and proposed an inquiry by the United Nations Security Council or another global body on the export controls of both countries. Bank of Korea seems to have chose to cut rates ahead of FOMC.

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.

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The question of compensation for South Koreans for labor during Japan's 1910-45 occupation of the Korean peninsula has soured the US allies' relations, which took a turn for the worse this month when Japan restricted exports of high-tech material to South Korea.

The South Korean population, however, has generally supported the Moon administration's willingness to relitigate what they see as unresolved historical disputes dating back to Japan's occupation.

The government revised down its growth forecast to between 2.5 percent and 2.6 percent earlier in the month from the 2.6 percent to 2.7 percent forecast in December.

In an earlier survey on Tuesday, 73 per cent of South Koreans said the government's response to Japan's export curbs was appropriate or should be stronger.

Seoul has accused Tokyo of weaponizing trade to retaliate against South Korean court rulings calling for Japanese companies to compensate aging South Korean plaintiffs for forced labor during World War II, and plans to file a complaint with the World Trade Organization. South Korea has rejected that idea.

Once the deadline is passed, it would enable Japan to continuously push S Korea for proposals to put an end to the dispute while also preparing for counter-measures, including considering to move ICJ.

The gap between the policy rates of South Korea and the US has now widened to 1 percentage point, which could cause an outflow of foreign investment from the local market in the future. Japan believes the issue of compensation was settled under a 1965 treaty.

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