by Jon Day
TOKYO, June 24 (Xinhua) -- Britain voting to leave the European Union poses both short and mid-term issues for Japan's economy with the longer term consequences as yet being unknown in fact posing the biggest problem of all after the "Brexit" vote, as the economy here is notoriously vulnerable to uncertainty.
Further politicizing the issue, British Prime Minister David Cameron, a staunch proponent of Britain staying in the European Union, saying he will step down on Friday has contributed to growing volatility in global markets, triggering the Bank of England to hold a rapidly convened press conference aimed at convincing markets that it would take any and all measures to support the Sterling as the pound plummeted to more than a 30-year low against the U.S. dollar and banking shares tanked to levels not seen since the global financial crisis of 2008.
With the U.S. dollar dropping below the 100 yen line for the first time since 2013, the Finance Ministry here is obviously up in arms about what will likely be ongoing volatility in currency markets in the coming days and weeks, as the "Brexit" news has rocked global markets.
Japan's Finance Minister, Taro Aso, told a press conference Friday that the government here is extremely concerned over the risks to the global economy, financial and exchange markets. And with the Bank of Japan opting to stay put on further easing until the results of Britain's EU referendum became clear, intervention by Japan into currency markets is now a likely scenario as investors pile into the yen, analysts have suggested.
"The yen is always a safe haven for investors in times of global market turmoil and speculators also helping to drive up its value is not in the interests of the government here who want to keep the currency low, which is one of perhaps the only redeeming features of 'Abenomics'," Hisao Katayama, a senior equity analyst at Nomura Securities Co., told Xinhua.
"While the markets here have been jittery over the potential of Britain leaving the EU., the reality of the situation has greatly surprised markets, with the Nikkei, for example, closing at more than a 16-year low and wiping out almost 8 percent. In the short term we can expect the yen to remain extremely firm and if the finance ministry intervenes, this will come as no surprise," Katayama said.
He added that while the "Remain" campaign had made it abundantly clear about the downside risks leaving the EU would bring, the "Leave" campaign had largely traded off scaremongering tactics and could not equivocally guarantee Britain's economic security, as numerous trade deals would have to undergo lengthy renegotiation, and other commonwealth countries and emerging economies now sounded out for new bilateral trade deals, in a move that most leading economists believe is backwards for the island nation's economy, the fifth largest in the world and second-largest in the EU to which it's been a member for 43 years.
With the likelihood that global markets will stay volatile for a protracted period of time and the yen pegged high versus the U.S. dollar, other analysts pointed to mid-term obstacles that Britain leaving the EU would have and how the Japanese economy would be adversely impacted as Britain is charting an economic course towards unchartered waters.
The vast majority of Japanese businesses with a presence in Europe were in favor of Britain staying in the EU, as their foothold in Britain and investment there has been made as a way to take advantage of Britain's relatively solid economy and due to the access it grants them to a lucrative EU, Britain's largest trading partner.
Sadayuki Sakakibara, the chairman of the Japan Business Federation or Keidanren as its known here, made strong calls for Britain to stay in the EU, citing the fact that more than 1,000 Japanese companies have a presence in Britain and of those companies around 140,000 people working in the United Kingdom are employed by them.
"There will be an immeasurable impact on their businesses," Sakakibara was quoted as saying ahead of the referendum if Britain backs "Brexit", as is now the case.
"Many Japanese businesses have set up operations in Britain because of its EU membership and their presence there has benefited the local economy. Now, while these businesses might not up and leave overnight, their future in Britain is now uncertain, and, hence, job security of those employed by these companies is now up in the air," Akihiro Hoshino, a senior quantitative strategist at Nomura Holdings Inc. told Xinhua.
"One of the biggest Japanese firms to be affected is Nissan whose factory near Sunderland in northeast England produces nearly 500,000 vehicles per year, some 50 percent of which are exported to the EU on favorable tariffs that could now likely be removed. Nissan's chairman and chief executive, Carlos Ghosn, has suggested that he favors stability within Europe, rather than a period of uncertainty that leaving the EU will bring," Hoshino said.
He added that along with other Japanese bellwethers like Fujitsu, Hitachi, Honda and Toyota, having manufacturing hubs in Britain only made sense due to their access to lucrative EU markets and this was the priority. Hoshino highlighted the fact that if Nissan, for example, were to relocate to an EU country then as many as 8,000 jobs would be lost in Britain directly and more than 30,000 indirectly in a possible exodus from Britain after 30 years of manufacturing stability.
According to the British Chamber of Commerce Japan, many Japanese firms have been looking to expand their operations overseas due to Japan's own economic malaise, shrinking workforce and aging population, with Japanese firms focusing on long-term investment in both the U.K. and other EU. powerhouses, including Germany.
In the case of Nissan and other Japanese bellwethers, if their goods are slapped with trade tariffs and additional red tape when dealing with Europe from the outside of the EU, relocating to central Europe may be the only viable option for such markets to remain competitive, Hoshino suggested.
Katayama added that for major trading firms and megabanks, like Mitsui & Co., Ltd., Mitsubishi Electric Corporation, Sumitomo Mitsui Banking Corporation, Itochu Corporation and Marubeni Corporation, the mid-term move may likely be to stay headquartered in Britain for the time being, but gradually switch more and more investment to the EU with a physical move likely happening thereafter.
