The plan announced Monday would offer reparations through a state-run foundation to a group of forced labour victims who had won landmark lawsuits against their former Japanese employers. Japan has insisted all compensation issues were settled by the 1965 treaty that normalized relations between the two countries after it had colonized the Korean Peninsula for 35 years until the end of World War II. The money to compensate the forced labor victims is likely to come from South Korean companies that benefited from that 1965 accord, which was accompanied by hundreds of millions of dollars in economic aid and loans from Tokyo to Seoul that were used in development projects carried out by the companies, including steel giant POSCO, which says it will consider contributing to the fund if requested.While the plan could be a political gamble for Yoon at home, experts say he will continue to press to improve relations with Japan as he looks to strengthen South Korea's defense in line with its alliance with the United States to cope with North Korea's growing weapons program.

Yoon said it was critical for South Korea to repair ties with Japan that deteriorated in recent years over grievances linked to Japan's brutal rule of Korea from 1910 to 1945. Hundreds of thousands of Koreans were mobilized as forced labourers for Japanese companies, or sex slaves at Tokyo's military-run brothels during World War II during that period. “Japan has changed from a militaristic aggressor to a partner that shares universal values with us and cooperates with us on security, economy, science and technology, and global agendas,” Yoon said.“It's clear that future-oriented cooperation between South Korea and Japan will preserve freedom, peace and prosperity not only for the two countries, but also for the entire world."Tensions with Japan had intensified after South Korea's Supreme Court in 2018 upheld lower court verdicts and ordered Nippon Steel and Mitsubishi Heavy Industries to compensate Korean forced labourers.

Japan reacted furiously, placing export controls on chemicals vital to South Korea's semiconductor industry in 2019, citing the deterioration of bilateral trust. South Korea's previous liberal government accused Japan of weaponising trade and subsequently threatened to terminate a military intelligence-sharing agreement with Tokyo, a major symbol of their three-way security cooperation with Washington. South Korea eventually backed off and kept the deal after being pressured by the Trump administration. Hours after Seoul released its plans to compensate forced labour victims, the South Korean and Japanese trade ministries simultaneously announced plans for talks to restore their trade relations. South Korea's Trade Ministry said it decided to suspend its dispute proceedings with the World Trade Organisation over the Japanese trade curbs.