SEOUL - South Korea and Japan agreed Wednesday to expand their currency swap arrangement to $70 billion from $13 billion.

According to an e-mailed statement sent by the Bank of Korea ( BOK), the central bank reached an agreement with the Bank of Japan (BOJ) on an increase in the maximum of the bilateral won-yen swap for non-crisis situation from $3 billion to $30 billion. The increase will be effective until the end of October 2012.

The swap had been made effective in May 2005 in a bid to stabilize regional financial markets through supply of short-term liquidity, but the arrangement was widened to the $30 billion level amid growing external uncertainties caused by Europe' s debt crisis and delayed economic recovery in the advanced nations.

"The action will mitigate adverse influences of heightened uncertainty in the global market on the two sound and well-managed economies and contribute to enhance stability in regional financial markets," the BOK said.

The BOK said in a separate statement released jointly by the Ministry of Strategy and Finance that the central bank expanded its won-dollar swap arrangement with Japan's finance ministry to $40 billion from $10 billion.

The won-dollar swap arrangement worth $10 billion, which can be tapped in the event of emergency, had been made effective through Chiang Mai Initiative (CMI), or a regional currency swap agreement. The CMI was reached in May 2000 between China, Japan, South Korea and the Association of Southeast Asian Nations (ASEAN) in a bid to prevent the outbreak of the region's foreign exchange crisis.

The swap expansion announcement came after South Korean President Lee Myung-bak held summit talks with his Japanese counterpart Yoshihiko Noda.

The two heads of states shared views that South Korea and Japan need to strengthen financial cooperation amid deepening uncertainties in the global economy, saying the two nations agreed to expand bilateral currency swap to the sufficient size of $70 billion for mutual benefits and financial stability through preemptive actions.