Ja­pan tak­ing leave of U.K. ahead of Brexit

Risk of no deal leads for­eign in­vestors to shift op­er­a­tions.

The Palm Beach Post - - BUSINESS - By Suzi Ring, Lisa Du and Alex Mo­rales Bloomberg

Af­ter a Fe­bru­ary meet­ing be­tween U.K. Prime Min­is­ter Theresa May and 19 Ja­panese busi­ness chiefs, Tokyo’s am­bas­sador to Bri­tain warned what might hap­pen if Brexit took an un­fa­vor­able turn for for­eign in­vestors.

“No pri­vate com­pany can con­tinue op­er­a­tions” in the U.K. if it be­comes un­prof­itable, Koji Tsu­ruoka told re­porters on the steps of May’s Down­ing Street res­i­dence, af­ter the pre­mier pledged to pur­sue fric­tion­less trade with the Euro­pean Union. “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 Tsu­ruoka’s warn­ing, shift­ing op­er­a­tions out of the U.K. or threat­en­ing to scale back if the coun­try crashes out of the EU without a deal.

Toy­ota says that it might have to tem­po­rar­ily halt out­put at its plant in Derby, Eng­land, in the event of a so-called hard Brexit. Elec­tron­ics maker 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. Other com­pa­nies, like ro­bot maker Yaskawa Elec­tric Corp., 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 U.K. is Ja­pan’s sec­ond-big­gest in­vest­ment desti­na­tion af­ter the U.S., with $153 bil­lion com­mit­ted as of 2017, ac­cord­ing to the Ja­pan Ex­ter­nal Trade Or­ga­ni­za­tion. The Asian na­tion is the big­gest in­vestor in Bri­tain aside from the U.S. and a hand­ful of Euro­pean neigh­bors. About 1,000 Ja­panese com­pa­nies op­er­ate in the U.K. em­ploy­ing roughly 160,000 work­ers.

Many of these firms came to Bri­tain in the 1980s as Prime Min­is­ter Mar­garet Thatcher pro­moted the coun­try as a point of ac­cess to Europe. That his­tory has not been for­got­ten. A 15-page let­ter issued by the Ja­panese gov­ern­ment to the U.K. in Septem­ber 2016, three months af­ter the ref­er­en­dum, said Tokyo trusts that the U.K. “will give due con­sid­er­a­tion to the con­text in which Ja­panese busi­nesses have in­vested in” Bri­tain.

Ja­panese busi­ness of­fi­cials’ blunt talk is un­usual for a cor­po­rate cul­ture where con­fronta­tion is frowned upon and con­trasts with many U.K. firms’ own re­luc­tance to speak out about Brexit. A De­cem­ber sur­vey by JETRO found 47 per­cent of Ja­panese-af­fil­i­ated com­pa­nies in Europe thought leav­ing the EU would have a neg­a­tive im­pact on them. Their main con­cerns were a U.K. eco­nomic slump and ex­port­ing from the U.K. to the bloc.

Now some of them are siz­ing up new sites in Europe. Ja­panese banks such as No­mura Hold­ings, Daiwa Se­cu­ri­ties Group and Su­mit­omo Mit­sui Fi­nan­cial Group have all opened Europe hubs in Ger­many. Mit­subishi UFJ Fi­nan­cial Group Inc. has cho­sen the Nether­lands as a base for its in­vest­ment bank­ing busi­ness in Europe, while Mizuho Fi­nan­cial Group Inc. is bol­ster­ing its op­er­a­tions in both coun­tries.

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