South Korea and Japan had shown a substantially lower unemployment rates than the international average for decades even after the peak of industrialization in the 1980s. The two countries have been often categorized together to experience similar changes in the labour market and for their similarity in productivist welfare state, East Asian welfare state and production welfare regime. However, there are also notable cross-country differences in the unemployment trends, especially when paying attention to the current youth labour market. Youth unemployment started to decrease in Japan from 2000s, unemployment rate in Korea is steadily increasing peaking the highest in their history. Furthermore, we see a sharp diverge in the overall ALMPs spending in the two countries; total ALMPs expenditure starts rapidly decrease in Japan while it is exactly the opposite in Korea. Highlighting on the difference in the two countries in both their performance of youth labour market and ALMP spending and programmes in recent years, this study attempts to answer the following two puzzles; 1) Why Korean and Japanese youth labour market perform differently, 2) how do Korea and Japan differ in their Youth labour market activation policy? and 3) why do these two countries that were commonly put together as similar type of welfare production regime start to diverge around their youth skill formation policy? We will closely examine the changes in youth labour market in South Korea and Japan, and examine how the two countries starts to diverge in their skill formation policy by taking a closer look at the policy changes around youth activation policy. We will than explain the evolution of skill formation in the two East Asian countries to later discuss on how institutional configuration in these two East Asian capitalisms presents a divergence in recent post-industrial periods.