South Korea’s central bank lowers rate amid Japan trade row

South Korea’s central bank on Thursday cut its policy rate for first time in three years to shore up growth threatened by a tre dispute with Japan.

Bank of Korea lowered its key interest rate by a quarter percent point to 1.50% following a meeting of its monetary policy committee, which also cut its growth forecast for country’s ecomy this year from 2.5% to just above 2%.

bank cited slowing exports and domestic investment and volatility in financial markets related to tre war between U.S. and China and Japanese curbs on certain techlogy exports to South Korea. bank h hiked rate by 0.25% points in vember and last lowered borrowing costs in June 2016.

bank said in a statement it will “carefully monitor developments such as U.S.-China tre dispute, Japan’s export restrictions, any changes in ecomies and monetary policies of major countries ... and geopolitical risks, while examining ir effects on domestic growth and inflation.”

Lee Ju-yeol, bank’s goverr, said South Korea’s exports and domestic investment during first half of year were more sluggish than expected and that it’s “hard to be optimistic about (ecomic) conditions moving forward.”

rate cut came amid escalating tensions between South Korea and Japan over Tokyo’s move to tighten controls on exports of photoresists and two or chemicals to South Korean companies that use m to produce semiconductors and display screens for smartphones and TVs.

South Korea says Japanese tre curbs could hurt its export-dependent ecomy and disrupt global supply chains. Lee said bank’s monetary policymakers assessed how tre dispute could affect growth at macroecomic level.

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South Korea has accused Japan of weaponizing tre 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 World Tre Organization.

Tokyo says materials affected by export controls can be sent only to trustworthy tring partners. Without presenting specific examples, it has questioned Seoul’s credibility in controlling exports of arms and items that can be used both for civilian and military purposes.

South Korea is also bracing for possibility that Japan will take furr steps by removing it from a 27-country “whitelist” receiving preferential treatment in tre.

Its removal from list would require Japanese companies to apply for case-by-case approvals for exports to South Korea of hundreds of items deemed sensitive, t just three materials affected by tre curbs that took effect July 4. It will also allow Japanese authorities to restrict any export to South Korea when y believe re are security concerns.

“Considering volume of tre between South Korea and Japan and connections between companies and industries, it’s hard to say materialization of export restrictions and ir expansion would have a small effect on (our) exports and our ecomy,” said Lee.

“It’s hard to make specific predictions for w on how export restriction movement will develop and what kind of effect that would have ... It wouldn’t be ideal to allow situation to worsen and a lot of effort should be invested to prevent it from happening,” he said.

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