South Korean markets largely shrugged off Seoul’s decision to end a military intelligence-sharing pact with Japan, even as the move heightened geopolitical risks and uncertainties as past issues have spilled over to trade as well as the security front.

Korea’s benchmark Kospi closed Friday down 0.14 percent at 1,948.30. The junior Kosdaq fell 0.53 percent to 608.98. The Korean won slipped 2.80, or 0.23 percent, against the U.S. dollar to 1,210.20.

Despite protest from Japan and the United States, Korea’s presidential National Security Council (NSC) announced Thursday it would pull out of the General Security of Military Information Agreement (GSOMIA), which was due for automatic renewal on Saturday.

The bilateral pact was forged in 2016, under U.S. arrangement, to counter the threat of North Korean nuclear and missile activities.

Japan’s foreign minister, Taro Kono, called Korea’s decision “extremely regrettable” and said their bilateral relationship was in deep trouble due to “a series of extremely negative and irrational actions by Seoul.”

“Korea’s decision to end the agreement is a complete misreading of the regional security environment,” he told reporters.

He said Korea has conflated security matters with Japan’s export controls, adding that the two are completely separate issues and that Japan can “in no way accept Seoul’s decision.”

Korea’s NSC deputy director, Kim You-geun, said the government decided to terminate the intelligence-sharing deal because Japan’s trade restrictions had created a “grave change” in bilateral security cooperation.

“We have concluded that it would not be in our national interest to maintain an agreement that was signed with the aim of exchanging sensitive military information,” Kim said in a news conference.

The rift between the two countries began when Japan in July curbed exports of high-tech materials needed by Korea’s vital chip sector. This month, it removed Korea from its fast-track export status, prompting Korea to strike Japan off its own preferential trade list.

The conflict stems largely from unresolved historical grievances during Japan’s 1910-1945 colonization of Korea.

While Japan has cited national security reasons for its trade actions, Korean officials saw them as retaliation over a Korean Supreme Court ruling that ordered Japanese companies to compensate wartime forced laborers during World War II.

Japan has vehemently opposed the ruling, saying all claims were settled through loans and aid grants in a 1965 treaty that normalized ties.

The deepening divide between Korea and Japan has been a headache for the United States, as the trilateral military alliance is a key part of its security framework in Northeast Asia.

The rupture comes at a time of heightened tensions on the Korean Peninsula, with North Korea conducting six ballistic missile tests in about a month.

Secretary of State Mike Pompeo said he was “disappointed” by Seoul’s decision and urged the two countries to resolve the dispute through dialogue.

"There is no doubt that the shared interests of Japan and South Korea are important and they`re important to the United States of America," Pompeo told reporters in Ottawa, Canada. "We hope each of those two countries can begin to put that relationship back in exactly the right place."

By Park Yong-beom and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]