Korea and Japan decided not to extend a currency swap deal between two countries in the aftermath of a diplomatic spat over Dokdo and other issues.

The Korea-Japan currency swap deal is going to be downsized to one-fifth, once the expanded agreement expires at the end of the month.

In a joint statement on Tuesday, the Ministry of Strategy and Finance, the Bank of Korea and their Japanese counterparts said they did not see the need to expand the larger swap deal, given the stable financial markets and the sound macroeconomic situation.

In October last year, Seoul expanded the US$13 billion dollar swap line with Tokyo to $70 billion for one year. It now comes down to $13 billion again. Currency swaps can be used to stabilize economies in a financial crisis.

The foreign exchange and stock markets in Seoul were not noticeably affected. The won closed at W1,110.7 against the greenback, up W1.30 from Monday's close and the highest this year. The KOSPI stock index fell 0.1 percent.