by Patrick Fearon-Hernandez, CFA
In Part I of this report, we reviewed the history of Japanese-Korean relations over the last several centuries, highlighting the Japanese invasions of Korea in the 1590s and 1890s, Japan’s assassination of a Korean queen in 1895, and Japan’s colonization of Korea from 1910 to 1945. We also showed how Japanese attitudes have been colored by Korea’s assimilation of Chinese culture and its close geographical proximity to the Japanese homeland. As a result, we argued that the enmity between these two ancient peoples is probably much worse than most observers realize, even if their mutual dislike was subsumed under the hegemonic leadership of the United States after World War II. Key to that process was U.S. pressure on Japan and South Korea to sign their Treaty on Basic Relations in 1965, under which Japan gave $500 million in aid to South Korea in order to settle all claims related to its colonization of the peninsula. This week, in Part II, we’ll explain why Japanese-Korean hostilities have suddenly broken out into the open again. We’ll conclude by discussing the implications of the dispute for the countries’ economies and for investors.