Seoul and Tokyo have started a discussion to improve bilateral relations by floating the idea of creating an economic cooperation fund, Kyodo News reported Monday.

The two countries are gradually inching away from their standoff and recently discussed the idea floated by the Japanese. The aim is for big businesses in both countries to set up a joint fund with the help of their government, Kyodo reported quoting Korean and Japanese officials.

It said the fund is not intended to compensate Korean victims of wartime forced labor, which is the question at the heart of their current rift, but to facilitate future economic development.

But it does envision Japanese companies that used Korean forced labor during World War II forking out money for the future. The Japanese government itself would pay nothing under the proposal so it can stick to its position that all reparations were settled by a lump sum payment in 1965.

It is uncertain whether the Korean government will accept. But the fact that the Japanese government made the proposal at all suggests that the two sides are looking for ways to settle their conflict and save face.

The Korean Foreign Ministry officially denied the report. "Our government respects the court decision" that Japanese firms have to compensate forced labor victims, a ministry spokesman said.

But he added it "has an open mind about seeking a rational solution that the victims and the peoples of the two countries can accept. Based on this position, we're continuing to communicate with Japanese Foreign Ministry officials."