Prospect of UK's no-deal EU exit alarms Japanese investors

After a February meeting between the UK prime minister Theresa May and 19 Japanese chiefs, Tokyo’s ambassador to Britain warned what might happen if Brexit took an unfavourable turn for foreign investors.

“No private company can continue operations” in the UK if it becomes unprofitable, said Koji Tsuruoka. “It is as simple as that”.

Eight months later, as the risk of a no-deal Brexit looms larger and nearer, Japanese companies aren’t waiting around to find out whether May can deliver. Instead, a growing number of them are heeding Mr Tsuruoka’s warning, shifting operations out of the UK or threatening to scale back if the country crashes out of the EU without a deal.

Mrs May provided little in the way of reassurance on Wednesday when she said at the Conservative Party conference that “Britain isn’t afraid to leave with no deal if we have to”.

Car maker Toyota said last week that it might have to temporarily halt output at its plant in Derby, in the event of a hard Brexit. Electronics company Panasonic has moved its European headquarters from near London to Amsterdam, while the Japanese retailer of Muji products is mulling a similar relocation to Germany.

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Other companies, like robot maker Yaskawa Electric, are choosing continental sites for new operations in order to stay close to European customers if Brexit creates trade hurdles.

“A lot of Japanese companies, manufacturing companies in particular, have invested in this country as a gateway to Europe,” Shinichi Iida, minister for public diplomacy and media for the Japanese embassy in London, said in an interview. “A no-deal Brexit in March next year will be nothing short of a cliff edge” for our businesses.

The stakes are high for both countries because of their close economic ties. The UK is Japan’s second-biggest investment destination after the US, with $153 billion committed as of 2017, according to the Japan External Trade Organisation.

The Asian nation is the biggest investor in Britain aside from the US and a handful of European neighbours. About 1,000 Japanese companies operate in the UK employing roughly 160,000 workers.

In a nod to Japan’s importance to the UK economy, Mrs May visited the country in August 2017, two months after her election, with a delegation of business leaders to discuss trade and investment opportunities.

At a Tokyo press conference, she praised “the commitment from Japanese companies to a long-term presence in the UK”.