The chronic stagnation of the domestic demand and productivity urged Japan to adopt bilateral approach, such as free trade agreements (FTAs), in its external trade policy. However, Japan`s reluctance in opening up its sensitive sectors has retarded the pace of the preparatory studies. For Japan, Korea is one of the most promising FTA partner, considering its economic size, match of trade structure, growth potential, and growing size of intra-industry trade. For fully benefiting from the potential gains of the Japan-Korea FTA (JKFTA), Japan should first conclude JKFTA by bypassing sensitive sectors utilizing the "grace period" allowed in the GATT provisions, and then gradually liberalize those sectors within the grace period