Japan plans to remove South Korea from its list of top trading partners in a dispute that may be linked to historical tensions between the sides.
The cabinet of Japanese Prime Minister Shinzo Abe approved the plans on Friday.
As a result, Japan would remove South Korea from a list of what are known as white countries with preferred trade relations. Such countries enjoy easier trade requirements than other nations.
Starting on August 28, however, Japanese companies must seek government permission to export to South Korea products that could have military uses.
South Korean President Moon Jae-in called the move selfish and warned it could damage the world economy. Earlier, a South Korean presidential spokesperson promised a resolute answer to Japan's move.
Last month, Japan restricted exports of a small number of important, high-technology materials to South Korea. The materials are used to make semiconductors and parts for electronic products that are important to South Korea's export-fueled economy.
Japan's decision to remove South Korea from the list is widely considered an action to answer rulings by South Korea's Supreme Court. In October, the court ordered some Japanese companies to pay Koreans who performed forced labor during World War II.
The Japanese government says all such disputes were settled in a 1965 treaty between the two sides. Under the same agreement, the countries established diplomatic ties.
The current trade issues, Japan says, are the result of national security concerns. The country pointed to improper incidents involving exports to South Korea. But some Japanese officials have appeared to link the decisions to the historical disputes.
Japan has the world's third largest economy, while South Korea has the 11th largest. A trade war between the two could affect not only East Asia, but the world economy. It could threaten the international technology supply chain because South Korea produces about 70 percent of the world's computer memory chips.
The Japanese companies named in the South Korean court ruling have yet to pay the money to the forced labor victims. Some of the survivors, who first brought the case, have started legal action to seize some of the companies' property to pay for a settlement.
Japan says it cannot accept the rulings. But the South Korean government says it cannot overturn them because that would harm the independence of the country's court system.
I'm Mario Ritter Jr.