Japan curbs could drag on, hurt global economy, says Moon

SEOUL, July 10 (Reuters): Japan's export curbs on key materials used by South Korean tech companies could drag on despite diplomatic efforts to end the dispute, South Korea's president said on Wednesday, pledging to help firms to reduce their reliance on Japanese suppliers.

Japan tightened restrictions last week on exports of three materials used in smartphone displays and chips, citing a dispute with Seoul over South Koreans forced to work for Japanese firms during World War Two.

The growing row threatens to disrupt supplies of chips and displays by South Korea's tech giants Samsung Electronics and SK Hynix, which count Apple Inc and other smartphone makers as customers.

"We can't rule out the possibility that the situation would be prolonged, despite our diplomatic efforts to resolve the issue," President Moon Jae-in said at a meeting with executives from South Korea's top 30 conglomerates.

"It is a very regrettable situation, but we have no choice but to prepare for all possibilities," said Moon, promising to ramp up government spending to help Korean firms source parts, materials and equipment domestically.

Samsung and SK Hynix have up to four months of stockpiles for some of the materials, according to experts. The companies denied a Korean media report that they planned to cut production of NAND chips as early as this month.

Shares in both chipmakers rose on Wednesday as investors bet the tighter restrictions, along with a supply glut, would eventually force production cuts and drive up chip prices.

Japan has rejected South Korea's calls to scrap the curbs and denied they violated World Trade Organisation (WTO) rules.

Japan told the WTO on Tuesday it had carried out a review needed to implement export controls based on security concerns, and had switched from applying "simplified" to "normal" procedures to South Korean trade.