Has Japanese Prime Minister Shinzo Abe's UK visit caused an economic shift?

For his part, Japanese Prime Minister Shinzo Abe took a tour of the UK and the Netherlands at the start of January to "properly convey Japan's thinking" over the Brexit situation. Despite supporting his British counterpart Theresa May and her deal, he's stressed the desire to maintain seamless access to the European Union (EU) via Japan's existing ties with the UK. Should there be any significant changes to these trade routes, Abe and his government may be forced to reconsider their business relationships.

Abe Analyzing His Options

While the head of Japan's meeting with May was certainly in good faith, his onward movements to the Netherlands are a sign that he's willing to explore other economic opportunities. If he can't maintain a strong link with the EU via the UK, he may consider encouraging Japanese businesses like Nissan and the SoftBank Group's ARM Holdings to relocate. In scouring potential European destinations, Abe will no doubt consider the financial strength of his counterparts and, in turn, their economies. One potential base could be Germany.

According to Frankfurt Main Finance, London could lose £711 billion/$915 billion worth of assets to Frankfurt following Brexit. With companies such as Goldman Sachs eyeing up Germany as a European base post-Brexit, Abe may follow suit. As an economy, Germany is thriving. As per IG's breakdown of world leaders' pay (shown above), Angela Merkel takes home £287,878/$370,482 in her role as Chancellor. That's the fourth highest pay packet in the world and a testament to the country's economic strength.

However, what Abe may also want to consider is the disparity between the wages of his European counterparts and the national economic output. As you can see above, Merkel's earns £7.97/$10.25 for every £1/$1.28 earned by the average worker in Germany. In contrast, the French Prime Minister Édouard Philippe banks £220,510 per annum. In comparison to the average annual pay in France (£42,992), the Prime Minister earns 5.13 times more than the national average.

On a comparative level, those stats show that France is a strong economy based on its average earnings. Indeed, that figure is more than the average salary in the UK (£42,835), Sweden (£42,816) and Japan (£39,113). What the data also suggests is that France has a greater level of economic equality than a country such as Mexico where the President (£166,797) earns 10.89 times more than the national average (£15,311). As you can see from the image above, Slovenia's Prime Minister earns a wage most in line with his country's national average. However, the disparity between Mr Philippe and his people isn't so far out of line as to signal potentially damaging economic instabilities.

In essence, dissecting the disparity between what those at the top earn compared to the country's average will also help Abe find a new home in Europe should he need it. If labour is cheaper, the cost of production will be cheaper. In this regards, France may prove to be too expensive. However, the upside is that the economy is strong and that could lead to more sales. Therefore, striking a balance between economic output, wages and cost of operations will also factor into where Japan may invest in the coming years.

Following Financial Swings and Public Sentiment

Naturally, with uncertainty surrounding Britain's relationship with Japan, the currency markets have taken been affected. As well as major institutions bracing themselves for major movements between the GBP/JPY currency pair, individuals who trade forex online are also monitoring the situation. Just as USD/JPY slumped to -0.140 on January 21, so too has GBP/JPY struggled to gain any positive moment in the first few weeks of 2019. Indeed, with Brexit advocates such as Jacob Ress-Mogg hot on the idea of a no deal split, Japanese investors may be spooked. Indeed, between forex movements and political dealings, the strength of the UK's long-standing relationship with Japan is unclear.  

The lesson here is that no one really knows what's going to happen but analyzing all the available facts is crucial. Prime Minister Abe is certainly doing that as he weighs up where his gateway to Europe will be, while investors are looking for every political and emotional nuances impacting the financial markets. In reality, only long after March 29, 2019, will anyone know the true effect of Brexit on Japan, the forex markets and everything else in between.