The March anniversary of Koreanpatriot Ahn Jung-geun’s execution at the hands of the then Japanese authorities who ruled over the Korean peninsula and northeast China’s Manchuria bought back into sharp focus the tenderness of relations between two nations that once related to each other as occupier and occupied.

Bitter feelings that have festered since Japan’s colonial rule of Korea was brought to an end at the close of World War II were again brought to the fore by the landmark 100th anniversary of his death by hanging at Lushun prison in the Harbin, China. Significantly, the date brought together otherwise sworn enemies North and South Korea in what was a rare united front – underlining the importance of Ahn to the Korean nation on either side of the ideological divide.

For Koreans, Ahn is a hero, an independence fighter who took down the man seen as responsible for bringing about the end of Korean sovereign rule. But for the Japanese, he is a criminal and assassin who shot dead their own national hero, Hirobumi Ito, the governor general of the Korean peninsula and a father of Japanese parliamentary democracy.

But it is perhaps Korea’s rising economic clout – and the downward spiral plaguing Japan – that best describes the story of the two countries these days.

And it’s one that seems increasingly to speak positively of a country that rebuilt its post World War II and Korean War reputation on miraculous growth from the pits of poverty. Japan, of course, became a powerhouse of a different order, armed with its superior mode of development despite the damage wrought by defeat in the World War II.

Interestingly, some international watchers say they sense unease in Japan over the rise of the much smaller South Korea.

“I expected the Japanese to be feeling anxious about China, what with the much-ballyhooed moment later this year when the Chinese economy will become larger than that of Japan,” wrote Gideon Rachman in his Financial Times blog in March. “What I hadn’t expected to find was increasing alarm about South Korea – a poorer, smaller country that was once colonised by Japan.

“But, as it happens, the Japanese are increasingly contrasting their own struggles with Korean success. The most recent cause of anxiety was the Winter Olympics. The South Koreans did brilliantly and came fifth in the medals table with six gold medals. The Japanese didn’t win any golds at all – and only got five medals of any colour.”

Publicly, the relationship between the two countries may be one that has a tendency to flare up – particularly over the perennial problem of sovereignty of the disputed Dokdo islets, which lie in the East Sea (the Sea of Japan to some), the body of water separating the pair. But behind the scenes, some would suggest there is a more cordial tone. On a visit to Japan in July 2008, South Korean President Lee Myung-bak is said to have told the then Japanese Prime Minister Yasuo Fukuda to “wait” as he said he had no choice but to include the name Takeshima – how the island is known in Japan – in reference to Dokdo in school textbooks. The alleged remark generated outrage in Korea when the Japanese newspaper Yomiuri Shimbun published an account of the claimed exchange. It later removed the article containing the claims from its Website and the episode continues to rage as the report was taken to court by over 1,000 plaintiffs for infringing on Korea’s sovereignty of the rocky outcrop.

A bulldozer to his critics, others see Lee as a pragmatist. And any doubts over Korea’s economic credentials amid the financial storm set about by the collapse of Lehman Brothers under his watch were surely landed a blow by the country’s quick emergence from its clutches with some positive looking data and indicators. And, if some analysts such as Rachman are to be believed, they are figures perhaps being looked at with some envy in Tokyo.

The economic gap is narrowing. While 20 years ago, the divide was mammoth, with Japan’s gross domestic product 11 times that of Korea, today, the gap stands at only 5.3 times the size of its erstwhile colonial subordinate. Similarly, the slide between the values of the countries’ respective stock markets was just as marked, falling from 10 times greater to 4.5 times during the same period, according to recent figures.

In the brutal financial year that was 2009, Korea somehow managed to emerge with the smallest of growth figures, while the Japanese economy slipped 6 percent.

But this shift, say market watchers, is down to more than mere economic growth on the part of Korea. A report from Korea’s LG Economic Research Institute says the changes can be put down both not only to fast economic growth in Korea, but also Japanese sluggishness.

“The difficulty the Japanese economy is facing now is not a short-term cyclic recession, nor a long-term downturn of finance and manufacturing,” it said. “It is chronically low economic growth.”

In 2008 while still presidentelect, Lee threw down the gauntlet with the boldest of statements as the year saw its first light. “If we put forward the right directions from 2008, we could overtake Japan within 10 years, and then become a close rival of China,” he said during a New Year’s speech in Seoul. These days, South Korea enjoys prowess as the world’s No. 1 shipbuilder, an accolade that owes much to the fall of the industry in Japan – though China may have designs in assuming the mantle at some point in the future. Semiconductors, plasma TVs and mobile phones are other key industries that have contributed to the added muscle enjoyed by Seoul.

But Lee followed that challenge to his nation with some positive sound bites prior to an April 2008 summit with Prime Minister Fukuda, emphasising a need for the two countries to “let bygones be bygones.” Lee said the continuing squabbles over historical disagreements had to be overcome in order to enhance future ties, an indication of his pragmatic approach to tackling immediate issues, principally economic matters. “Historical truth must not be ignored, but we can no longer afford to give up future relations due to disputes over the past,’” Lee was reported as saying.

The textbook issue was again brought to the fore early last year when yet more “historical distortions” appeared in new publications slated for issue to schools this year. And again recently, when the books were approved for use, the issue drew red flags from Seoul.

But could the various contentious issues that fester in the background have an impact on areas outside the sphere of politics? The small matter of a potential East Asian economic block that would include both Korea and Japan, in addition to mighty China – the pretender to Japan’s throne as No. 2 economy in the world – is one arena that could be hampered by the lingering disagreements, according to some.

“I would say unification between South Korea and North Korea would come faster than economic integration between the three countries,” Kwon Goo-hoon, an economist at Goldman Sachs, told local media last year, pointing to politics and the struggle over hegemony as major hindrances.

Others chimed in with a similar tone. “Despite the economic benefit, non-economic factors should be accounted for. See how Korea and Japan react whenever the issue over Dokdo arises,” said Lee Chang-jae of the Korea Institute for International Economic Policy.

But in 2008, French professor and author Guy Sorman claimed this vision was not beyond the realm of possibility, telling local press that Korea and Japan would be united by common economic interest.

“If I were to make a guess or a bet, I am quite sure that sooner or later, you will have, between Japan and South Korea, a kind of a union, like in Europe, with a common currency,” he told the Korea Times.

“If France and Germany were able to do that, after 1,000 years of war, Korea and Japan could do it too,” he continued. “If you look at Europe, this is all part of burying our hostile past.”

Elsewhere, Korea still has to deal with the two issues that the foreign economic press continually cite as strong repellents of foreign investment: strict regulations and militant labor inflexibility. And a recent Organization for Economic Cooperation and Development Report showed Korea to be at the bottom of the table of the 30 member nations, which represent the world’s biggest economies in terms of the income disparity between men and women. Japan, though, faired little better, occupying the second from bottom position.

Across the East Sea, there has been some recent noise about improved relations with both China and Japan. Prime Minister Yukio Hatoyama, currently suffering falling approval ratings amid an election fund scandal, risky post office reform and a U.S. military bases dispute, said he expected relations with its two neighbours to improve because he was calling for the public to be more willing to acknowledge Japan’s history of colonial rule and aggression, according to a report from the Kyodo news agency.

The Japanese wire service said that in an interview with the Egyptian newspaper Al-Ahram, he again advocated the East Asian community idea, adding he did not believe either South Korea or China were against the proposal.

“I believe Japan’s relations with China and South Korea will be better than ever,” Hatoyama was quoted as saying. “That, I believe, derives from the fact that we have insisted more than the previous administration that we should turn a serious eye to Japan’s so-called past history.”

He went on: “In East Asia, it has become very important to cooperate not just in the economy, trade and finance, but in such various aspects as human exchanges, cultural exchanges, education, the environment, energy and anti-disaster measures.”

Japan is also seeing some of its economic lynchpins lose some of their luster, notably car maker Toyota. The manufacturer’s plight has perhaps been best characterized by the recall scandals that have seen the brand’s international reputation take a severe hit. It has also had to watch Korean electronic maker Samsung rise to the top of the pile.

At home, critics point to the boom periods of the 1960s and 1980s as seeds of the current problems. The population has contracted since, prices have come down and, they say, while the generations back then were encouraged to buy everything they needed and then latterly invest in property, the bubbles have burst and today’s young generation, they add, cannot afford to buy anything.

Writing in The Japan Times, columnist Philip Brasor said: “The ‘dankai juniors,’ meaning the children of the boomers, came of age in the early 1990s, and though they had fewer job opportunities than their parents, their ranks were large enough to keep consumption levels high. But in the last decade, the subsequent generation of workers hasn’t been able to keep consumption at the same level, which is ironic because 2002-2007 marked the longest period of expansion in post-war Japan. If the average person didn’t feel the benefits, it’s because it was all tied to exports. Japanese companies remained competitive overseas by downsizing domestic work forces and keeping a lid on wages.”

Recent export data have shown surges for both nations as consumer demand in Asia and the United States picked up. But late in March the Chosun Ilbo warned in an editorial that Korea can’t afford to be complacent in its rivalry with Japan. Since the financial tsunami, the newspaper noted, Japan has shown signs that it wants to learn from the Korean example, with its ministry of economy, trade and industry setting up a Korea department.

“Japan has been shocked by recent developments where Korean businesses have either overtaken or are threatening to overtake their Japanese rivals, winning a major nuclear power plant order from the UAE,” it said. “Koreans should be proud of that feat, but the nation still lags behind Japan in many areas.”

The newspaper pointed to a lag behind Japan in U.S. patent applications, a trade deficit with the country in terms of technological products and in the far lesser number of indigenous goods that enjoy the largest world market share in comparison to the levels Japan enjoys. Though Korea had managed to achieve a bigger trade surplus for the first time in comparison to Japan, it said, its trade deficit with the Land of the Rising Sun was maintained.

So, the quest to achieve President Lee’s grand plan remains somewhere in the distance, it would seem. For the time being, with much of the technology going into Korean products still coming from Japan, the onus, say analysts, is on improving innovation and science because, in that regard, Japan is literally streets ahead. Figures such as Ahn and Dokdo will likely remain political issues lurking in the background and sometimes, as we have seen, in the foreground.