Japan warns UK PM rivals: no-deal Brexit could end our investment honeymoon

By Costas Pitas and Minwoo Park

LONDON/TOKYO (Reuters) - Japan on Thursday cautioned the two candidates vying to replace Prime Minister Theresa May that a no-deal Brexit would be so disruptive for many companies that Japanese capital's 35-year honeymoon with Britain could end.

In an appeal to both Boris Johnson and Jeremy Hunt, Foreign Minister Taro Kono said Tokyo did not want a no-deal Brexit, that some companies were already moving out and that more investment could go.

“I know Boris and I know Jeremy both of them pretty well,” Kono told Reuters in Osaka where a G20 summit begins on Friday.

“I have communicated with them that Japan wouldnt want no-deal Brexit. So we hopefully Brexit could be done through ordinary and calm way.”

Japan has long seen Britain as a pro-business, liberal gateway into the rest of the European Union and has around 1,000 companies based in the country, including major carmakers and technology firms. Japanese firms have invested over 60 billion pounds in Britain.

But the 2016 vote to leave the European Union, some Japanese firms have begun moving business out of Britain with particular concern over the impact of a disorderly exit on Oct. 31.

“Please, no no-deal Brexit,” Kono told the BBC. “Some companies are already starting to move their operations to other places in Europe.”

Asked whether investment could leave Britain, Kono said: “It could be that there is going to be less investment.”

BREXIT

Britain's new leader will be announced on July 23. Both the leadership contenders - Johnson and Hunt - have said they are prepared to take Britain out of the bloc without a deal, although it is not their preferred option.

No-deal means there would be no transition period so the exit would be abrupt, the nightmare scenario for many businesses and the dream of hard Brexiteers who want a decisive split.

Carmakers have been particularly vociferous in their opposition to a no-deal Brexit due to fears over tariffs of up to 10% on vehicles, customs delays and new bureaucracy which could cripple just-in-time production practices.

Margaret Thatcher's Conservative government had attracted Japanese carmakers to Britain in the 1980s to rebuild an ailing domestic industry with promises of access to the European single market.

Last year Nissan, Toyota and Honda made roughly half of Britain's 1.5 million cars, employing tens of thousands of people both directly and through the supply chain.

Brexiteers have long argued that the EUs biggest economy Germany, which exports hundreds of thousands of cars to Britain ever year, would not impose restrictions in order to protect that trade.

Some Brexit supporters say there would be short-term disruption but in the long-term the UK would thrive if cut free from what they cast as a doomed experiment in German-dominated unity that has led to Europe falling behind China and the United States.

But Honda announced earlier this year that it will close its British plant whilst Nissan cancelled plans to build a new sports utility vehicle at its Sunderland factory in the north of England. Both blamed factors other than Brexit.

Kono warned on Thursday about the impact of a disorderly exit on the sector.

“If there's a no-deal Brexit and if they have to go through actual custom inspections physically, those operations may not be able to continue,” he said.