A joint venture created in 2019 by two major Japanese and South Korean companies was hailed as a model of cooperation amid tense diplomatic relations.
Executives from South Korea's Naver and Japan's SoftBank Group said they would jointly own the operator of Line, a messaging app developed by South Korea and popularized in Japan. They gave the project a code name that emphasized cooperation: Gaia.
Five years later, Japan and South Korea have made significant progress in easing long-standing historical tensions. But a rift has emerged over the ownership of the Naver-SoftBank company, and diplomats and international relations experts fear it could again put a strain on ties between the countries.
Japan and South Korea, both key US allies in Asia, have a delicate history. Japan colonized Korea from 1910 until its surrender in World War II in 1945, and Japan and South Korea have often feuded over territorial and geopolitical differences.
“As we have seen many times in the past, relations between Japan and Korea change, and smaller points of tension, whether wartime or modern, can escalate quickly and affect defense and diplomacy more broadly,” he said. Maiko Takeuchi, regional manager. Director of CCSI, a New York group that advises governments on international security issues.
The stakes are high given concerns about North Korea's nuclear proliferation and increased instability in the region, Takeuchi said. “There is a strong view on the part of the United States and elsewhere that preserving good relations between Japan and Korea is more important than ever,” he said.
The messaging platform at the center of the dispute, Line, was introduced in Japan in 2011 by Naver, the operator of South Korea's main search engine. After the Tohoku earthquake and tsunami that year, when phone lines were knocked out in Japan, Line allowed users to communicate over an Internet connection.
Since then, Line, known for its on-screen stickers featuring expressive rabbits and bears, has become Japan's most popular messaging app, racking up hundreds of millions of users and expanding to Thailand, Taiwan and Indonesia.
In 2019, SoftBank founder Masayoshi Son and Naver co-founder Hae-Jin Lee agreed to create a 50-50 joint venture that would indirectly operate Line. Reports referred to the deal as the “Son-Lee alliance,” when relations between Japan and South Korea were at an all-time low.
The previous year, South Korea's Supreme Court had ordered several Japanese companies to compensate South Koreans forced to work in their factories during World War II. Japan reacted to the 2019 court order by imposing export restrictions on chemicals essential to South Korea's semiconductor industry.
The countries' top leaders did not speak and there was talk of breaking intelligence sharing agreements. This was a big problem for the United States, which had been trying to get Japan and South Korea to work together to counter challenges from China and North Korea.
But relations between South Korea and Japan improved greatly. In March 2023, President Yoon Suk Yeol of South Korea announced a plan to compensate former forced laborers using money from a government-led fund. Later that month, Yoon met in person with Japan's Prime Minister Fumio Kishida (the first such meeting in 12 years) and Japan lifted its restrictions on exports of semiconductor materials.
But late last year, cracks began to appear within the Naver-Softbank partnership.
Line's operator, a company called LY Corporation, said in November that a third party had gained unauthorized access to its systems through Naver's cloud storage system. In turn, Japan's Ministry of Communications issued an ambiguous statement that was widely interpreted as a directive to Naver to sell its stake in their joint venture.
In South Korea, the measure caused a stir. Some analysts and politicians interpreted it as an attempt by Japan to use political pressure to undermine Naver, one of South Korea's largest companies. Naver's union said it opposed any sale, and the company's chief executive, Choi Soo-Yeon, said he found the Japanese government's directive “very unusual.”
A editorial Last month, the Korea Economic Daily compared the move to state interference. “For the Japanese government to now demand Naver's departure, after all the hard work and investment, seems at odds with the principles of a civilized nation,” the article states.
In South Korea, opposition parties have criticized Yoon for taking what they see as overly conciliatory positions toward Japan, citing Naver as the latest victim of those policies. Cho Kuk, a key ally of South Korea's former president, has called Yoon's approach to Japan “humiliating,” accusing the president of failing to support a successful domestic company.
At a briefing in May, Yoon's policy chief of staff, Sung Tae-yoon, said that as long as the Line operator was able to draw up satisfactory plans to strengthen security, the Japanese government should not press ahead with “adverse measures.” “which would force the sale of a stake in Naver. The South Korean government “will continue to ensure that Korean companies are not subjected to any discriminatory measures or unfair treatment abroad,” he said.
SoftBank and Naver are discussing possible revisions to the Line operator's ownership structure, according to the companies.
Naver executives have largely remained silent on the issue. A Naver spokeswoman said the company was open to all possibilities. A spokesperson for Japan's Communications Ministry said it was up to Line's operator to decide how to improve its security management.
Leaders on both the Japanese and South Korean sides appear determined to prevent the dispute over Line from escalating. Kishida and Yoon agreed in late May that the dispute should not hamper diplomatic relations.
In the past, even seemingly minor incidents have proven capable of escalating into protracted diplomatic conflicts. In 2018, when a South Korean warship was accused of pointing its fire control radar at a Japanese plane flying over the Sea of Japan, the countries responded by stopping defense-related exchanges. That stagnation was eased only this month.
How Japan ultimately handles the Line ownership issue may affect the broader trajectory of Japan-Korea relations, said Yul Sohn, president of the East Asia Institute, a think tank in Seoul.
“From the Korean side, the general public believes that the Yoon government has shown its intentions and the cup is still half empty and waiting for Japan to respond,” he said.
If Japan shows it is willing to reciprocate, even through a gesture such as a concession related to the Line dispute, Yoon could use that to maneuver for further cooperation, Sohn said.
“We are in a phase of recovery of relations, but both parties are very aware of what has happened in the past,” he said. “Even with a stronger foundation built, there are still cracks to be aware of.”
Juan Yoon contributed reporting from Seoul.
