"I warn of greater damage to the Japanese economy in the end," Moon told a meeting of top aides on Monday, urging Japan to stop "unilateral pressure" and return to the dialogue table for a diplomatic solution.
Japan may lose its important economic partner as the two countries have maintained an "international division order" from parts and materials to finished goods, especially in the manufacturing sector, despite South Korea's huge trade deficit, Moon said. "Japan's move breaks the half-century-old framework of economic cooperation which has accumulated through interdependence and symbiosis between South Korea and Japan."
Despite concerns that Japan's export curbs will hamper South Korea's economic growth, South Korea will overcome difficulties with united power as it did before, Moon said, suggesting South Korea will take steps to diversify import destinations and reduce its dependence on Japanese materials, parts and equipment.
"The government's determination to use this as an opportunity for our economy to turn the misfortune to advantage is firm," Moon said. "We will step up our efforts to improve our economic fundamentals. We will overcome this situation in any case."
In a TV debate, Japanese Prime Minister Shinzo Abe raised suspicions that South Korea may not abide by sanctions on North Korea. Koichi Hagiuda, the executive acting secretary-general of Abe’s Liberal Democratic Party (LDP), has said that security reasons were behind export restrictions, citing "concerns" that high-tech materials could end up in North Korea and be used for military purposes.
"This is a grave challenge to our government," Moon said, adding South Korea has faithfully implemented sanctions. He challenged Tokyo to accept Seoul's proposal for verification by international organizations without engaging in "any further wasteful debate on this point."
Moon condemned Japan's "unprecedented" move to link the past to economic issues as "very unwise"
Ties between the two Asian neighbors have been in the doldrums for years, with South Korea insisting that Japan should apologize and make amends for abuses during its colonial rule. In particular, Seoul wants Tokyo to address the issue of women forced to work in Japanese wartime military brothels.
The two countries were locked in a fresh row over a decision by South Korea's highest court in October last year that acknowledged individual rights to get compensation for wartime forced labor. The Supreme Court upheld a 2013 ruling that ordered Japan's Nippon Steel & Sumitomo Metal Corp. to pay 100 million won each to four Korean victims.
Tens of thousands of Koreans were forced to work under harsh conditions for Japan, but many have died. Government data at the time showed that there were 6,570 survivors.
Japan has insisted colonial-era issues were settled in a 1965 agreement that restored diplomatic ties with the payment of $500 million. However, supreme court justices ruled that they cannot accept the Japanese court's ruling because it was based on the premise that forced labor during Japan's colonial rule was legitimate.
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