South Korea's central bank delivered a surprise interest rate cut on Thursday, and shaved this year's growth forecast to the lowest in a decade, as a brewing dispute with Japan piled more pressure on the trade-dependent economy.
The Monetary Policy Board made a decision to cut the base rate unexpectedly by 25 basis points to 1.50 percent, the bank said in a statement on Thursday.
The central bank had kept the rate frozen since November, when it raised the rate by 25 basis points to 1.75 percent.
During a visit to Seoul on Wednesday, David Stilwell, the top US diplomat for East Asia policy, said the United States would "do what it can do" to help, but did not elaborate on what those steps might be and said it was fundamentally up to South Korea and Japan to resolve their differences.
Japan's export restriction came in protest against the South Korean top court's rulings that ordered some of Japanese companies, including Nippon Steel and the Mitsubishi Heavy Industries among others, to pay compensation to the South Korean victims who were forced into labor during the Japanese colonization of the Korean Peninsula.
Lee emphasized the government needed to maintain strict measures aimed at containing housing prices while monetary policy was focused on risks from slowing economic growth. "While (Moon) said long-term efforts to strengthen our components industry (to reduce dependence on Japan) and diversifying import sources are important, he would not take lightly immediate diplomatic efforts to find a solution".
The bank cited slowing exports and domestic investment as well as volatility in financial markets caused by the ongoing U.S.
"Japan's export restrictions are in violation of the global trade rules including the World Trade Organization (WTO) regulations", said Yoon, highlighting the unfairness of Tokyo's exports that singled out Korea and items valuable to the country's key components industry.
Tokyo said the issue has nothing to do with historical issues between the countries and says the materials affected by the export controls can be sent only to trustworthy trading partners.
United against Japan's export restrictions that aim at undermining the heart of the Korean economy, .
Relations between Seoul and Tokyo soured after Japan introduced export restrictions on certain materials used by South Korea's major tech firms, sparking fears that the move could affect technology companies globally.
South Korea's five political parties have also chose to establish a pan-national "emergency cooperation" body, Yonhap reported Thursday.