Japan says no decision on buying Korean debt, island row festers

TOKYO (Reuters) - The Japanese government has not reached a decision yet on whether it will buy South Korean government debt, Finance Minister Jun Azumi said on Friday, as a diplomatic row escalates between the two countries over a territorial dispute.

Azumi reiterated that the government might not extend a currency swap arrangement with South Korea after it expires in October.

Purchases of South Korean government debt and the currency swap were part of efforts to strengthen economic ties, but further cooperation has been thrown into doubt due to diplomatic tensions that have been growing in Northeast Asia.

"I want a little time to see how things develop," Azumi told a media conference.

"Things have reached the point where the Japanese people may not be able to accept the argument that political relations and economic relations are separate."

The Yomiuri newspaper reported earlier on Friday that Japan is leaning towards freezing its planned purchase of South Korean government bonds. Japan currently holds little or no Korean government debt, although official figures are not released.

The Yomiuri said, without citing sources, the Japanese government believes the purchase, which was originally scheduled to start by the end of the year, would not be understood by the public in the current diplomatic climate.

South Korean President Lee Myung-bak earlier this month visited islets both countries claim in what Japan considers a provocative action, triggering a diplomatic tit-for-tat between the two neighbors.

The dispute with South Korea coincides with a stand-off between Japan and China over another island chain, which sparked major anti-Japanese protests in China last week.

Despite close economic ties in one of the world's wealthiest regions, memories of Japan's war-time occupation of much of China and colonization of South Korea still run deep.

Japanese Prime Minister Yoshihiko Noda, under fire for what the opposition says is an insufficiently tough stance on territorial disputes, plans to hold a news conference on Friday to address the issue, Japanese media said.

(Editing by Paul Tait)

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Source: http://www.cnbc.com/id/48773323?__source=RSS*tag*&par=RSS

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