The plunge is good news for rival importers and South Korean brewers but is a worrying sign for Japanese exporters like Asahi Group Holdings, which said last week the boycott was affecting sales and lowered its profit guidance.

Japan shipped $4.3 million (3.5 million pounds) worth of beer to South Korea in July, down from $6.6 million a year earlier and $7.9 million in June, according to preliminary customs office data provided by lawmaker Kim Jung-woo to Reuters.

Japan tightened export controls last month for materials used to make chips, South Korea's top export item, intensifying a row over wartime forced labour and sparking a consumer backlash in Korea.

Many Korean supermarkets and convenience stores have removed Japanese items such as beer from their stands and stopped new orders.

South Korea buys 61% of Japan’s beer exports, spending 7.9 billion yen ($73 million) in 2018 on the shipments, according to Japan's finance ministry.

Korea's imports of Japanese beer declined 11% in the first half from a year earlier, after nearly quadrupling over the past three years in 2018, according to customs data.

Overall, imported beers such as Asahi and Heineken have eroded the dominance of domestic beers in recent years, but they are likely to fall from their peak due to the boycott of Japanese products, an official at a South Korean brewer said.

"Both domestic and other imported beers are expected to share the benefits from the boycott campaign," he said on condition of anonymity because of the sensitivity of the matter.

Japanese automakers such as Toyota and Honda are bracing for further sales drops in South Korea in the coming months, after they posted sharp sales declines last month.

A slew of South Korean airlines are also suspending flights to Japan as they brace for a dwindling number of tourists.

(Reporting by Sangmi Cha and Hyunjoo Jin; Additional reporting by Joori Roh in SEOUL and Kaori Kaneko in TOKYO; Editing by Muralikumar Anantharaman and Stephen Coates)

By Sangmi Cha and Hyunjoo Jin