South Koreas trade deficit with Japan hit a record high at 25.3 billion US dollars in 2006, the South Korean Ministry of Commerce, Industry and Energy said. According to a report by the ministry on the countrys merchandise trade balance, the trade deficit with Japan rose 3.9 per cent from 2005, when the deficit stood at 24.3 billion US dollars. In 2004, the figure was 24.4 billion US dollars.

In South Korea, local manufacturing firms are heavily dependent on Japanese parts for their finished goods, which requires more imports of Japanese parts and other goods. The South Korean currency wons strength against the yen, which has increased in value against Japanese yen by about 31 per cent since 2004, also made it more difficult for Korean exporters to expand their shares in the Japanese market. The strong won encouraged South Korea to import more industrial parts and materials from Japan.