SOUTH KOREA-JAPAN FEUD SEEN TO ESCALATE

Tensions between Japan and South Korea could flare up in the coming months amid an ongoing feud over an issue of compensation for Koreans made to work in factories during Japanese colonial rule, according to Kyodo News.

Neither Japanese Prime Minister Shinzo Abe nor South Korean President Moon Jae In appears willing to back down, raising concerns about the prospects for ongoing security and economic cooperation between the close neighbors, both key U.S. allies in Asia.

A South Korean court on Tuesday began procedures to liquidate assets seized from Nippon Steel Corp., which had refused to comply with a Supreme Court decision awarding 100 million won ($8,400) each to four former workers.

Japan has condemned the ruling as a violation of international law, saying it runs counter to a 1965 bilateral agreement signed when the countries established diplomatic ties.

Under the agreement, Japan provided South Korea with $300 million in grants and $200 million in low-interest loans with the understanding that the issue of wartime compensation was being resolved "completely and finally."

The Supreme Court, however, ruled that the former workers were not properly compensated for emotional suffering endured under their conscription during the 1910-1945 period when the Korean Peninsula was under Japanese control.

Japan has threatened to retaliate if the branch of the Daegu District Court goes through with the liquidation of the Japanese steelmaker's stake in PNR, a joint venture with a South Korean partner Posco.

Possible measures include tightening conditions for issuing visas to South Korean citizens, imposing additional tariffs on South Korean products, and recalling Ambassador Koji Tomita from Seoul, according to sources close to the matter.

While declining to go into specifics, Chief Cabinet Secretary Yoshihide Suga said Tuesday that "all options" are on the table.

Conservative lawmakers from the ruling Liberal Democratic Party the same day submitted a resolution urging Abe to stand firm on the issue, saying Japan should be prepared to swiftly retaliate.

It is expected to take several months at least until the assets are actually liquidated. Nippon Steel has said it will file an immediate appeal, which would likely put the process on hold for several weeks, and after that the assets need to be evaluated before they can be sold off.