Japan after Brexit

Japan was among the first to grapple with the immediate affects of Britain's vote to leave the European Union. Tokyo stocks plummted Friday on news of the Brexit referendum results, ending the day down 8 percent. The Bank of Japan, meanwhile, has prepared to put forth a new round of monetary easing measures in case the yen strengthens too much against the dollar and euro.

Though stocks have rebounded somewhat, there is still concern in Japan, as in Europe, about the full implications of Brexit, which may take months or more before becoming apparent. Japanese companies, for example, share the fear that Britain's exit may pave the way for other EU countries to seek a way out, changing the composition of the European market.

The week after the British electorate sent shockwaves around the world, uncertainty abounds in Japan, as its government and economy confronts a slew of open-ended questions about security and stability.

Calming the economy

On Tuesday morning, Prime Minister Shinzo Abe again called for stability in the markets and said Japan will cooperate closely with other Group of Seven (G7) nations to minimize the impact of Brexit on the global economy.

"It is important for the G7 advanced countries to join forces and keep sending the message to the market that we will make the utmost efforts to stabilize the financial market," Abe told a meeting of the Council on Economic and Fiscal Policy in Tokyo.

Sadayuki Sakakibara, chairman of the Japan Business Federation, said that government and companies need to "prepare for various risks," an official told local media after the meeting.

"In the short term, the knock-on effects of Brexit mean that the US Fed is having second thoughts about raising interest rates," said Jun Okumura, a visiting scholar at the Meiji Institute for Global Affairs. "That, combined with the perception that the yen is a safe haven currency, is pushing the yen up and pushing the stock market down," he added.

"All of that is very negative to the short-term outcome of 'Abenomics'," he said, using the term coined for the prime minister's sweeping economic policies. "It's not good for corporate profits and, therefore, tax revenues, which has a negative impact on government finances and pushes the nation further into debt."

Long-term impact

There are suggestions that the Japanese government is planning a 10 trillion yen ($97 million) supplementary budget to mitigate any additional fall-out from Brexit, Okumura pointed out.

But the long-term impact of Britain's departure from the union is of arguable bigger concern, Okumura believes.

"If this is the first step in the union deteriorating over the next decade or so, then the knock-on effects for Japan become very severe," Okumura told DW. "The EU is already a two- or even three-tier economy, and if this crisis deepens and another major economy looks like it might withdraw, then there will be a severe impact on the global economy and the entire architecture behind globalization."

Japan's automobile industry has been made particularly vulnerable by Brexit, analysts point out. Its major firms all operate production facilities in the UK, from where they export vehicles to other EU member states. If the EU decides to impose trade barriers on UK exports, then those firms - and many of the 1,000 Japanese companies with operations in the UK - may have to consider relocating to mainland Europe.

For the Japanese government, there are also security concerns. Britain's departure "significantly complicates" Tokyo's alliances with Europe, believes Stephen Nagy, an associate professor of politics at Tokyo's International Christian University.

"Japan has been negotiating on security issues with the EU, but now it is going to have to negotiate with a new entity - a different EU - as well as with the UK, and that increases complexity and reduces capacity," he said.

Trust issues

"I also feel that this will make the Japanese government think about who its most reliable partners are, both regionally and globally," Nagy said. "They are going to have to reconsider their partnerships at a time when Japan is deeply concerned about the territorial situations in the South China Sea and the East China Sea."

The UK has been a strong trading partner with Japan, but there are some here who fear that China may seize the opportunity to form a free trade agreement with London, undermining the relationship. And, if that does come to pass, the feeling is that London could prioritize stable trade ties and, as a potential result, side with Beijing in regional geo-political disputes.

"If the UK can now follow the Norwegian model for its relationship with Europe and have a customs union, either with or without free movement of people from member states, then I believe everything can still work out well," said Okumura. "But anything less than that and there will be big problems for all those with a stake in Europe."

"And let us not forget, the UK has always been something of an outlier to the rest of the union, and this is similar to putting an end to a bad marriage," he added. "Maybe, with the UK now out, the home will be a more harmonious and easier place to manage."