Japan and South Korea failed to come to the table over a wartime labor dispute, after a deadline on Tokyo's request to establish an arbitration panel came and went Tuesday without a response from Seoul.
As ties between the neighboring countries sink to the lowest point in years, Japanese officials say Prime Minister Shinzo Abe plans to forgo holding talks with South Korean President Moon Jae In on the sidelines of a Group of 20 leaders' summit next week in Osaka.
The dispute stems from South Korean court decisions ordering Japanese companies to reimburse victims of forced labor during Japan's colonial rule of the Korean Peninsula from 1910 through the end of World War II in 1945.
While Japan argues that the issue of compensation was settled by a 1965 bilateral accord under which it provided South Korea with $500 million in financial aid, lawyers have pushed ahead with plans to seize and liquidate the companies' assets.
In January, Japan asked to settle the issue through diplomatic channels. But South Korea did not oblige, maintaining that the issue should be left to the judicial system.
In a bid to break the impasse, Japan proposed on May 20 that the countries set up an arbitration panel consisting of three members -- one selected by each country and the last chosen from a third country.
Under the dispute settlement process outlined in the 1965 accord, South Korea had 30 days to comply. South Korean officials have said they would "carefully review" the proposal.
Japan's next move will be trying to get South Korea to agree to have a third country choose all three panel members. Failing that, Japanese Foreign Minister Taro Kono has expressed willingness to take the issue to the International Court of Justice.
Kono and his South Korean counterpart Kang Kyung Wha are planning to meet on the sidelines of next week's G20 to discuss the issue, Japanese government officials said.
Often marred by differing views of wartime history and a territorial row, relations between the countries have become especially fraught in recent months due to the wartime labor issue as well as an incident where a South Korean destroyer allegedly locked its fire-control radar onto a Japanese patrol plane in Japan's exclusive economic zone outside its territorial waters.