Theresa May is under pressure to reassure Japanese companies over the likely impact of Britain’s exit from the European Union on their UK investments when she visits Tokyo this week.
The prime minister will arrive on Wednesday on a three-day trip that is expected to include a meeting with Emperor Akihito and free-trade talks with her Japanese counterpart, Shinzo Abe. Under EU rules, official free-trade negotiations cannot begin until after Britain has left the trading bloc. But the prospect of informal discussions will boost claims by May and other pro-Brexit politicians that exiting the EU will leave Britain better placed to trade freely with major economies such as Japan and China.
While details of her itinerary have yet to be made public, May will be accompanied by a delegation of business leaders that will “showcase the strength of British business, the shared confidence in the UK-Japan economic relationship as we leave the EU, and the potential for future growth,” a Downing Street spokesman said. Her visit comes soon after the foreign secretary, Boris Johnson, promised Japanese officials that Britain was eager to reach an “all-singing, all-dancing” post-Brexit free-trade agreement with Tokyo.
However, trade aside, analysts warned that Japanese firms could reduce their investments in Britain if they feel Brexit would hamper their ability to operate across the EU.
“An increase in costs following Brexit could lead to a decline in Japanese investment in the UK and the relocation of production bases to other EU countries,” said Katsunori Kitakura, lead strategist at Sumitomo Mitsui Trust International. “As such, the ongoing negotiations between the UK and the EU will be crucial for the future investment relationship between the UK and Japan.
“Japanese companies want to continue their investments in the UK after Brexit. However, the UK government will need to respond to their requests and take measures to maintain the same business environment that is currently in place as far as possible.”
Despite Downing Street’s assurances that Britain will remain open for business after Brexit, Japanese manufacturers and financial institutions have voiced concern about their future investments if it leaves the single market.
Britain would have much to lose from even a partial Japanese withdrawal. Companies such as Nissan and Hitachi have invested more than £40bn in the UK, and Japanese firms together employ a total of 140,000 people in the country.
“Now that Japan is close to the final deal [on a free-trade agreement] with the EU, the Japanese government would want Britain to form a customs union with the EU so that Japanese businesses can maintain de facto single-market access,” said Takashi Miwa, chief economist for Japan at the investment bank Nomura.
Miwa was confident companies such as Hitachi would remain committed to Britain, but said that they would seek concessions on “[more] flexible and privileged treatment with regard to hiring and firing employees, and on taxation than the continental EU countries”.
In recent months major Japanese banks have announced plans to scale down their presence in London in anticipation of more political uncertainty over Brexit negotiations. Chief among their concerns is the potential loss of the “EU passport”, which enables banks based in London to operate freely across Europe’s financial markets.
Daiwa Securities, which has its headquarters in London, this year announced that it would open a subsidiary in Frankfurt. Nomura Securities, Japan’s biggest brokerage, is reportedly planning to make Frankfurt its post-Brexit base, but will retain a large number of staff at its current EU headquarters in the City. And last month it was reported that Mitsubishi UFJ, Japan’s biggest financial group, is to base its investment banking business in Amsterdam.
Abe and Japan’s biggest business lobby, Keidanren, have not attempted to hide their fears that Brexit could be a “huge negative” for Japanese companies in the UK. In an unusually frank statement issued at last year’s G20 summit in Beijing, Japan set out a list of demands that included May negotiating a deal that keeps Britain in the EU customs union and single market, and guarantees the free flow of workers between the UK and the rest of the continent.
A Japanese government official said Abe and business leaders would “reiterate what they have said a number of times so far – that is, to request that Japanese business and financial interests should in no way be jeopardised by the Brexit and its consequences”.
The official, who asked not to be named, told the Observer that, while Abe – who last year implored Britain to vote Remain – was not seeking specific reassurances from May, Japanese businesses could reconsider their investment in the UK if they believed Brexit would be detrimental to their long-term interests.
“If the UK business climate becomes unfavourable for Japanese companies, as a natural consequence they will disinvest from Britain and put more investment into the continent – and that is a development on which Tokyo will be able to exert little influence,” the official said.
The business secretary, Greg Clark, has secured commitments from Nissan and Toyota that they will continue to make cars in Britain after Brexit – but only after offering assurances in letters whose contents remain secret.
“The Japanese business community might push for similar secret assurances, but they also know that such a one-sided promise from the UK government will not guarantee a continued trade relationship unless it’s agreed to by their EU partners,” said Osamu Tanaka, chief economist at the Dai-Ichi Life Research Institute in Tokyo.
Tanaka, though, believes May’s visit has come at just the right time. “Now that the Brexit discussion is at a critical juncture, Japanese business leaders want to hear clear assurances from her,” he said.
“Many Japanese firms use the UK as a headquarters for their European businesses, and as an export and sales hub to the EU. They want clarification that the business environment will not change after Brexit.”