A series of data breaches at a $20 billion internet company co-owned by Japan’s SoftBank Corp (OTC:SFTBY), and South Korea’s Naver (OTC:NHNCF) is causing diplomatic tensions between the two nations.

What Happened: Data leaks from Line Yahoo have led to strained relations between Japan and South Korea, Financial Times reported on Tuesday. The breaches were attributed to insecure systems at Seoul-based Naver, which co-owns the company.

Officials in Tokyo have suggested that Naver should reduce its 50% stake in A Holdings, the parent company of Line and Yahoo Japan, citing national and economic security concerns. This move could potentially allow SoftBank Corp to gain control.

Takeaki Matsumoto, Japan’s communications minister, emphasized the need to consider the impact of the company’s capital structure on its security governance.

He stated, “The purpose of this is solely for the protection of personal data.”

The issue has escalated to high-level discussions between Japanese and South Korean leaders, with both sides agreeing to coordinate efforts to prevent further escalation. The situation has also drawn comparisons to the U.S. ban on TikTok over similar data security concerns.

South Korea’s main opposition party has criticized Japan’s pressure, calling it “corporate extortion” and warning against unilateral actions that could alter A Holding’s capital structure.

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Why It Matters: The merger of Yahoo! Japan and Line Corporation was confirmed in November 2019, forming Z Holdings. This merger was controlled by a 50/50 venture between Yahoo! Japan's parent company, SoftBank Group Corp, and Line's parent company, Naver Corporation.

The development comes on the heels of SoftBank reporting a quarterly net profit of $1.5 billion, driven by the soaring valuation of Arm Holdings, as it continues to amass funds for its artificial intelligence expansion. This profit exceeded analysts' expectations, despite the group's tech-heavy Vision Funds recording a quarterly investment loss of JP¥57.5 billion ($368 million).

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Photo by NP27 on Shutterstock.

This story was generated using Benzinga Neuro and edited by Pooja Rajkumari