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By Yoko Kubota

SEOUL, Jan 11 (Reuters) - Japan and South Korea will likely steer clear of simmering disputes and seek closer economic ties during the Japanese premier's visit to Seoul from Sunday, as the two countries battle fallout from the global financial crisis.

Japanese Prime Minister Taro Aso's two-day trip resumes Tokyo and Seoul's "shuttle" diplomacy of mutual annual visits, which stagnated after a territorial spat flared up in July and Aso's predecessor abruptly resigned in September.

"This will be a ceremony to show that they have a future-oriented vision and it will be forward-looking, not looking at the past," said Masao Okonogi, a Korea expert at Tokyo's Keio University.

Aso and South Korean President Lee Myung-bak have already met every month since October at international gatherings as they try to boost cooperation. The Japanese leader, who arrived in Seoul around midday, will hold formal talks with Lee on Monday.

South Korea has been hit hard by the global financial crisis. The won <KRW=> has been hammered by concerns that South Korea, the world's 13th biggest economy and Asia's fourth, is among the most vulnerable to the global financial turmoil. Many analysts predict the economy will contract this year for the first time in 11 years by as much as 3 percent. [ID:nSEO82504]

Japan, the world's second-biggest economy, slid into recession in the July-September quarter and analysts say its GDP in the October-December period would likely have contracted the sharpest in 34 years. [ID:nT309895]

The two countries, both major exporters, agreed last month on a currency swap deal of around $20 billion, which involves trading exclusively in the two countries' currencies. [ID:nSP283370]

Aso and Lee are expected to agree to bolster cooperation in battling the financial crisis and confirm the importance of preventing protectionism.

FORCED LABOUR, DISPUTED ISLETS

Both Japanese and South Korean foreign ministry officials said a long-running feud over a set of desolate islands located about the same distance from both countries, called Dokdo in Korean and Takeshima in Japanese, is not on the agenda.

The islets lie near fertile fishing grounds and possible maritime deposits of lucrative natural gas hydrate.

But such disputes can easily flare up and strain ties between Japan and South Korea, often frayed by issues stemming mainly from Tokyo's often brutal 1910-45 colonisation of Korea.

Tempers flared in July when Seoul protested what it saw as a fresh claim from Tokyo to the disputed islands. [ID:nT229473]

Last week, Aso, 68, acknowledged in parliament that his family firm had used South Korean forced labourers and Allied POWs in a mine during World War Two.

The premier has said he had no personal knowledge of the mine since he was just a child at the time. [ID:nT13339]

In another sign of the close entwinement of the countries' wartime past, Lee was born in 1941 in Osaka, Japan, where his father was a migrant farm worker. He returned with his impoverished family to South Korea following Japan's 1945 defeat.

Both leaders, facing sagging support rates at home and a nearby rising China, want to avoid getting tangled in the past.

"It will be much more effective for South Korea to work with Japan in responding to China's potential (as an economic power)," said Lee Myon-woo of the Sejong Institute near Seoul. China is the top trading partner for both countries.

Aso and Lee will also discuss how to move forward stalled multilateral talks on disabling North Korea's nuclear programme, and a possible free trade deal between Japan and South Korea, negotiations of which have been stuck for years over tariffs.

They also aim to bolster cooperation in space and satellite programmes and in aiding Afghanistan.

Aso, accompanied by about 20 Japanese business executives, will also meet South Korean business leaders. (Additional reporting by Jack Kim in Seoul; Editing by Linda Sieg and Dean Yates)

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