The joint venture, established in 2019 by two major Japanese and South Korean companies, was hailed as a sign of cooperation amid tense diplomatic relations.
Executives from South Korea's Naver and Japan's SoftBank Group said they would jointly own a company that runs the South Korean-developed messaging app Line, which is popular in Japan. The two companies gave the project the code name “Gaia” to highlight their cooperation.
Five years later, Japan and South Korea have made great strides in easing long-standing historical tensions, but a rift over ownership of the Naver-SoftBank joint venture has diplomats and international relations experts worried ties could be strained again.
Japan and South Korea, two of the U.S.'s main allies in Asia, have a sensitive history. Japan colonized Korea from 1910 until its surrender in World War II in 1945, and the two countries have often fought over territory and geopolitical differences.
“As we have seen many times before, Japan-South Korea relations change and small tensions, whether wartime or modern, can quickly escalate with broader implications for defense and diplomacy,” said Maiko Takeuchi, regional managing director at CCSI, a New York-based group that advises governments on international security issues.
Takeuchi said the risks were heightened given concerns about North Korean nuclear proliferation and regional instability. “The United States and other countries strongly believe that maintaining good relations between Japan and South Korea is more important than ever,” he said.
The messaging platform at the center of the controversy, Line, was introduced in Japan in 2011 by Naver, a major South Korean search engine. After the Great East Japan Earthquake and tsunami that year knocked out Japan's phone lines, Line allowed users to communicate over an internet connection.
Since then, Line, known for its expressive on-screen stickers of rabbits and bears, has become Japan's most popular messaging app, attracting hundreds of millions of users and expanding into Thailand, Taiwan and Indonesia.
In 2019, SoftBank founder Masayoshi Son and Naver co-founder Lee Hae-jin agreed to set up a 50-50 joint venture to indirectly operate Line. At a time when Japan-South Korea relations were at an all-time low, the deal was dubbed the “Son-Lee Alliance.”
The previous year, South Korea's Supreme Court ordered several Japanese companies to pay compensation to Koreans who were forced to work in its factories during World War II. Japan responded to the judicial order in 2019 by imposing export restrictions on chemicals vital to South Korea's semiconductor industry.
The leaders of each country said nothing, and there was even talk of scrapping the intelligence-sharing agreement. This was a major problem for the United States, which had sought cooperation from Japan and South Korea to counter threats from China and North Korea.
But relations between Japan and South Korea have improved significantly since then. In March 2023, South Korean President Yun Seok-yeo announced plans to use money from a government-led fund to compensate former forced laborers. Later that month, Yun met with Japanese Prime Minister Fumio Kishida for the first one-on-one meeting in 12 years, and Japan lifted export restrictions on semiconductor materials.
However, late last year, cracks began to appear in the joint venture between Naver and SoftBank.
LY Corporation, the operator of Line, said in November that a third party had illegally accessed its systems via Naver's cloud storage system, prompting Japan's Ministry of Internal Affairs and Communications to issue a vague statement that was widely interpreted as ordering Naver to sell its stake in the joint venture.
The move caused an uproar in South Korea, where some analysts and politicians interpreted it as Japan trying to use political pressure to weaken Naver, South Korea's largest company. Naver's labor union said it would oppose any sale, and the company's CEO, Choi Soo-young, called the Japanese government's directive “highly unusual.”
The Korea Economic Daily published an editorial last month characterizing the move as state interference. “For the Japanese government to now demand that Naver withdraw after so much effort and investment goes against the principles of a civilized country,” the article said.
In South Korea, the opposition party has criticized Yoon for being overly conciliatory toward Japan, making Naver the latest victim of his policies. Cho Kuk, a key aide to South Korea's former president, has called Yoon's stance toward Japan “humiliating” and accused the president of not supporting successful South Korean companies.
Song Tae-yoon, Yoon's chief policy adviser, said at a briefing in May that the Japanese government should not pursue “adverse measures” such as forcing the sale of Naver shares as long as Line's operator can present sufficient plans to strengthen security. He said the South Korean government will “continue to ensure that Korean companies are not subject to any discriminatory measures or unfair treatment overseas.”
SoftBank and Naver are reportedly in discussions to revise the ownership structure of the company that operates Line.
Naver executives have remained largely silent on the issue. A Naver spokesman said the company is considering all options. A spokesman for Japan's Ministry of Internal Affairs and Communications said it is up to Line's operator to decide how to improve its security management.
The leaders of Japan and South Korea appear determined to prevent the spat over Line from escalating, with Foreign Minister Kishida and Yoon agreeing in late May to not let the dispute become an obstacle to diplomatic ties.
Past experiences have shown that even seemingly minor incidents can escalate into long-running diplomatic disputes: In 2018, South Korean naval vessels were accused of shining fire-control radar at Japanese aircraft flying over the Sea of Japan, and the two countries responded by suspending defense-related exchanges. The impasse was only eased this month.
Yul Song, president of the East Asia Institute, a Seoul think tank, said how Japan ultimately handles the issue of ownership of the line could influence the broader direction of Japan-South Korea relations.
“On the South Korean side, the public believes the Yoon administration has signaled its intentions and is still waiting for Japan's response with the cup half empty,” he said.
Song said that if Japan showed a willingness to respond, even through concessions on the Line dispute, Yoon could use that to push for further cooperation.
“We are in the stage of restoring relations, but both countries are well aware of what happened in the past,” he said. “Even if a stronger foundation is built, there are still rifts that must be reckoned with.”
John Yoon Reporting from Seoul
