Concerns are rising here that the escalating tension between Seoul and Tokyo over Dokdo may take its toll on their economic, cultural and tourist exchanges.

Signs of repercussions are emerging from Japan after President Lee Myung-bak’s controversial trip to the islets on Aug. 10 and his subsequent calls for an apology for Japan’s wartime atrocities from the country’s emperor. Tokyo has long claimed the South Korean islets in the East Sea.

With public sentiment turning increasingly bitter, the protracted standoff may squeeze businesses in both countries, tourist influxes on safety jitters and exports of Korean music and dramas.

Sumitomo Mitsui Card Co., Japan’s leading credit card issuer, said last week it will delay the release of a new prepaid card for Japanese travelers to use in Korea. The product was part of a joint project with Seoul-based Hana SK Card Co.

BS Nippon Corp., a Japanese broadcaster, said it has also decided to postpone the airing of South Korean drama series. “A Man Called God.” The series stars Song-Il-kook, a popular actor who took part in a 220-kilometer group swim to Dokdo for Liberation Day, which marks the end of Japan’s colonial rule in 1945.

“What Japanese firms fear the most when they enter the Korean market is a situation in which anti-Japanese sentiment breaks out due to diplomatic friction and it results in a sit-in by far-right groups or a boycott campaign against their products,” said an official at the state-run Korea Trade-Investment Promotion Agency.

The state-run Korea Tourism Organization said Monday its Tokyo office has been receiving faxes and phone calls that threaten the safety of Korean tourists. On Aug. 15, a Korean man protesting in front of the Yasukuni shrine was assaulted by a group of Japanese.

More than 236,000 Koreans toured Japan in July, up 35.4 percent from a year ago, according to the Japan National Tourism Organization. Japan is the top overseas destination among Korean travelers.

“The ongoing conflict appears to have not yet affected travel demand but if it may experience a sudden fall if Japanese far-right activists get extreme and possibly jeopardize safety,” an industry source said.

The Japanese Cabinet is slated to decide on further tit-for-tat actions at a meeting on Tuesday. It may agree on scrapping its plan to buy Korean government bonds or rolling back an envisioned $70 billion currency swap deal between the two countries.

Also on the agenda could be whether to withdraw support for Seoul’s bid for a non-permanent seat in the United Nations Security Council for 2013-14 before a general assembly meeting in October.

“We can’t rule out the possibility that the Japanese government ends up unfortunately linking (the Dokdo issue) with economic situations but it will never help both countries,” Rep. Chung Moon-hun of the ruling Saenuri Party told KBS Radio.

“While persevering with what they should persevere with, it’s important for Korea and Japan to create a future-oriented relationship.”

With Prime Minister Yoshihiko Noda expressing regret about the trip, bilateral ties have plunged to their lowest ebb since their normalization in 1965. Japan’s recall of Muto Masatoshi, its ambassador to Seoul known for his Korea-friendly attitude, will likely leave his spot vacant until a September reshuffle.

Tokyo is also forecast to reinforce its demand for a trial at the International Court of Justice via a diplomatic letter this week. Seoul brushed aside its verbal proposal last week, reiterating that the islets are its territory “historically, geographically and under international law.”

Still, none of the measures are likely to come about, nor would they inflict substantial damage even if they did. On both sides, politicians may be taking advantage of the sensitive issue to flaunt their populist credentials in the run up to key elections later this year, observers say.

Scott Snyder, a senior fellow for Korea studies and director of the U.S.-Korea policy program at the Council on Foreign Relations in Washington, said that the only option for successfully managing a relationship in which both sides need each other is to “buck the lure of populism and resort to ‘big think.’”

“Lee’s visit may hold great emotional importance for those who are still focused on past historical injustices between South Korea and Japan, but it distracts from the central reality that ultimately must propel relations between the two countries,” he recently wrote on the think tank’s blog.

By Shin Hyon-hee (heeshin@heraldcorp.com)