Long lunchtime queues form outside restaurants serving samgyeopsal (barbecued pork belly) and sundubu jjigae (a tofu stew). Groups of teenage girls brave the drizzle and eat Korean-style hotdogs on street corners after shopping for cosmetics and K-pop merchandise.

This is not Seoul, but Shin-Ōkubo, a little slice of Korea in central Tokyo. It is home to a large ethnic Korean community, some the descendants of people at the heart of a dispute between Japan and South Korea that local business owners fear is turning them into collateral victims.

In recent weeks, Tokyo and Seoul have exchanged tit-for-tat measures as discord has widened from a long-running row over Koreans who were brought to Japan to work in mines and factories before and during the second world war.

After South Korean courts ordered Japanese companies to compensate the workers last year, the spat intensified and has now spread to trade, security cooperation, tourism and even preparations for next summer’s Olympics in Tokyo.

Whenever relations worsen, we receive threats, including towards our children and grandchildren

“The number of customers has dropped by about half in recent months,” said the owner of a shop selling Korean cosmetics, who asked not to be named. “Young women still shop here, but older people just glance inside and walk on. It never used to be like this.”

The woman, who has run her shop for more than 20 years, said the country of her birth and the one she now calls home were at risk of becoming permanent adversaries. “They are poles apart. Japan insists that all compensation claims from the war have been settled, but how would you feel if, say, your grandfather was a forced wartime labourer?

“I have more Japanese friends than Korean ones here, but we avoid talking about politics because we know we would go round in circles.”

Earlier this year, Japan placed restrictions on exports of semiconductor materials that are considered vital to South Korea’s tech industry and followed up by ending South Korea’s fast-track export status.

Business owners in Shin-Ōkubo are concerned about the fallout from the dispute between Japan and South Korea. Photograph: Justin McCurry/The Guardian

The move prompted anger in South Korea, where many still resent Japan’s colonial rule of the peninsula from 1910 to 1945. The government saw the measure as retaliation for the court rulings against Japanese firms, and promptly removed Japan from its own “white list” of trading partners that receive preferential treatment.

However, some shop owners said their businesses were weathering the diplomatic storm. “It hasn’t really affected us, but that’s probably because young people are less interested in politics,” says Choi Dong-han, whose store sells K-pop memorabilia.

Young Japanese devotees of South Korea’s most successful cultural export still flock here to buy posters, DVDs and miniature figures of BTS, Tohoshinki and Big Bang, added Choi, who moved to Tokyo from South Korea two decades ago. “But I hope Japan and South Korea can sort out their differences. We’re neighbours, so we have to get along.”

Relations, however, are far from neighbourly. Seoul has called on the International Olympic Committee to ban Japan’s rising-sun flag – seen by some Koreans as a symbol of Japanese militarism – from next year’s Summer Games in Tokyo. A recent poll found that South Koreans trust North Korea more than they do Japan.

Late last month, South Korea scrapped an intelligence-sharing pact with Japan. Experts have warned the move could harm the countries’ ability to counter North Korea’s ballistic missile and nuclear threat, while the US has put pressure on Japan’s prime minister, Shinzō Abe, and the South Korean president, Moon Jae-in, to drag their countries back from the brink of a long and damaging diplomatic estrangement.

Media in both countries have been accused of peddling cultural stereotypes and whipping up nationalist sentiment. Some South Koreans have responded to calls to boycott Japanese products, including cosmetics, beer and clothes, while the number of South Koreans visiting Japan in August was 48% down on the same month last year.

In a recent editorial, the left-leaning Japanese newspaper Asahi Shimbun accused other sections of the Japanese media of “trying to stir up hatred towards South Korea”.

The paper reserved most scorn for the Shukan Post weekly magazine, which ran a series titled “Goodbye to our annoying neighbour: Why we don’t need South Korea”. It also published an article citing academic research claiming that Koreans are pathologically incapable of controlling their emotions – an anti-Korean trope among the Japanese right.

While North Korean missile tests have in the past prompted ugly street protests by rightwing extremists against Japan’s Korean community, locals say this has not been the case during the most recent row, thanks in part to a controversial 2016 law aimed at curbing hate speech.

“We are ordinary people trying to make a life here in Japan,” said Yuh Keun-ie, president of the central headquarters of the Korean Residents Union in Japan, an organisation that represents about two-thirds of the 610,000 Korean residents in Japan who have not become naturalised Japanese citizens. Many of the rest belong to Chongryon, an association of Korean residents sympathetic to North Korea.

“But whenever relations between Japan and Korea worsen, we receive threats, including towards our children and grandchildren.”

Yuh, who has seven grandchildren, two of whom have taken Japanese citizenship, added: “We are not interested in politics. All we care about is our livelihoods – that with hard work, talent and a bit of luck we can lead comfortable lives and contribute to the local community.”