Business circles in Korea and Japan were the most eager to welcome an agreement reached between Seoul and Tokyo last month on resolving the issue of Korean women forced into pre-1945 wartime sexual slavery for Japanese soldiers.
The Federation of Korean Industries, a major business lobby here, said in a statement at the time that it expected the two neighbouring nations to usher in a new century of hope by putting an end to the most sensitive matter between them. Its Japanese counterpart, Keidanren, also welcomed the agreement as a forward-looking move that would lead to galvanizing economic co-operation between the two countries.
Prolonged diplomatic disputes over historical and territorial issues have dampened bilateral trade and investment ties in recent years while both Korea and Japan have been struggling to reinvigorate their cooling economies.
Data released by the Korea International Trade Association on Wednesday showed Japan's dwindling portion in Korea's exports. The shipment of Korean goods to Japan decreased by more than 20 per cent from a year earlier to $25.6 billion (s$36.6 billion) last year, accounting for 4.9 per cent of its exports, the lowest level ever. Accordingly, Japan was down one notch to the fifth-largest market for Korean exporters in 2015.
Experts attributed the sharp drop mainly to the weaker yen, which has made Korean products more expensive in Japanese markets. But the downward trend comes as the prolonged diplomatic fray has made a significant dent in overall economic ties between the two countries.
The bilateral trade volume, which peaked at $108 billion in 2011, has since continued to decline. Japanese firms' investment in Korea decreased from $4.54 billion in 2012 to $1.65 billion in 2015, according to the Ministry of Trade, Industry and Energy.
The number of Japanese travelers to Korea, which amounted to 3.51 million in 2012, fell far short of 2 million last year.
Given this across-the-board downturn, it is understandable that business sectors in the two countries, especially on the Korean side, hope that last year's agreement results in strengthening the bilateral economic partnership.
While Korean and Japanese companies compete to increase global market shares in many areas, they still have much room for gaining mutual benefits from expanding co-operation particularly in energy and infrastructure construction projects, economists note.
"The enhanced economic ties between Korea and Japan will help create more jobs for young people in both countries and ride out a deepening slump in the global economy," said Choi Chang-kyu, an economics professor at Myongji University in Seoul.
In an encouraging sign, more Korean firms operating in Japan expect their business conditions to improve this year. According to a survey conducted by the KITA's office in Tokyo this week, over 30 per cent of the 69 companies polled saw a likely improvement in their business environment in 2016, compared with only 15.5 per cent that were upbeat in last year's poll.
Kim Jung-chul, head of the office, said it was necessary to step up efforts to expand exports to Japan on the back of the beneficial effects of the improving diplomatic relations and the revitalizing Japanese economy.
Economists here also set their sights on the likely resumption of a currency swap deal between Seoul and Tokyo and Korea's possible entry into the Trans-Pacific Partnership, a US-led free trade accord concluded in October with the attendance of 11 other regional countries, including Japan.
They raise the need to make more active efforts to reopen a swap line with Japan sitting on a foreign-exchange reserve of more than $1.2 trillion, indicating the Japanese yen can be changed into the US dollar anytime in global currency markets.
This kind of tool is what Korea needs to preempt a possible crisis to be prompted by a complex set of external risks.
Restoring a swap line with Japan, which was cut off early last year, would result in Seoul being part of an international financial stability mechanism the US has set up by inking currency swap deals with Japan and other major advanced economies, economists note.
The improved ties may also give an impetus to negotiations on Korea's entry into the TPP.
Seoul officials concede consultations with Tokyo will be the thorniest part as Japan is the only TPP founding member that Korea has not concluded a bilateral free trade deal with.
Buoyed by the Seoul-Tokyo agreement on resolving the wartime sexual slavery issue, a US official said last month that the move was as important as the TPP conclusion. His remark, which reflected Washington's satisfaction with the removal of a major stumbling block in consolidating a trilateral co-operation with its two key Asian allies, may well be seen as boding well for Korea's early entry into the Pacific basin trade scheme.
Experts renew their call for Korea and Japan not to allow diplomatic tensions to spill over again into economic co-operation that can bring practical benefits to both sides.
Choi Joong-kyung, a former top Korean economic official, said in a recent commentary that it would be wrong if the financial authorities of the two countries continued to engage in a war of nerves on restoring a currency swap arrangement.
"It will only harm the interests of both sides if they fail to keep the principle of separating politics from the economy," he said.