The Potential Impacts of Brexit on the Japanese Economy

Abstract

Japan is a significant trade partner for the European Union, benefiting from equal access to member country markets. The United Kingdom absorbs around 20% of Japan’s total exports to the EU and is home to nearly 1000 Japanese companies. In June 2016, however, the UK voted in a national referendum to leave the EU. The prospect of Britain exiting the 28-nation bloc has posed a number of political and economic challenges to not only EU member states, but also their partners outside Europe. If the UK leaves the EU, Japan could suffer from weaker exports to the EU, a decline in FDI or exchange rate fluctuations. This, in turn, could undermine Japanese Prime Minister Shinzo Abe’s economic policy known as Abenomics. The Japanese government, in a document entitled Japan’s Message to the United Kingdom and the European Union, explicitly described its concerns regarding the UK’s exit process, among which uncertainty surrounding Brexit negotiations is seen as a major factor.