The UK government has signed a trade deal with Japan, marking its first free trade deal since 31^st January 2020. Here’s what the new trade deal means for UK businesses, the opportunities it presents, and how the currency market has reacted.

What the Japan trade deal could mean for UK businesses

The UK-Japan trade deal replicates the existing EU-Japan deal, with several key differences which are specific to the UK. This includes mutually beneficial provisions around the use of data and improved mobility for workers who wish to relocate.

The UK-Japan trade deal stipulates that 99% of exports between the two countries will be tariff-free, prompting a predicted trade increase of £15.2 billion and an employee wage boost of £800 million.

Potential business opportunities

This deal could potentially move the UK closer to joining the CPTPP and is an opportunity to secure Japanese investment across more UK regions and sectors.

Automotive

Japanese investors like Nissan and Hitachi are already set to benefit from reduced tariffs in UK trade regarding imported parts and streamlined regulatory procedures. Increased access to auto parts and train cars from the UK are also an attractive lure for Japan.

Tech

UK businesses within the tech and fintech sectors are set to enjoy free flowing data without localisation requirements, which will make it cheaper for them to set up servers in Japan. Net neutrality principles will be maintained, as will the high standard of data protection.

Financial services

Financial services are currently the UK’s largest Japanese export. Once the deal with Japan is officiated, the UK will start to see better market access and far less regulatory friction. The deal also gives UK firms a streamlined application process for setting up operations in Japan.

Food and drink

Iconic UK goods will see more protection under the new deal. Malt producers will enjoy more generous export quotas compared to EU businesses and exports of pork, beef and salmon will see significant tariff reductions. Traditional UK food and drink products such as regional wine, teas and cheeses, will also see beneficial tariffs on their exports.

How are the pound and the yen performing?

The strength of the Japanese Yen is expected to rise, continuing a two-month upward trend and sitting at a rate of 1 JPY to 0.0075 GBP. Demand for safe-haven currencies during the pandemic have strengthened its worth, especially as the threat of a second lockdown looms.

Fears of a no-deal Brexit and the potential for 2021 interest rates to be down at -0.1% have caused sterling to struggle against most currencies in recent weeks. As of mid-September, it was trading slightly above 2-month lows, with 1 GBP equal to 135.16 JPY. The deal with Japan, combined with a positive outcome to October’s EU summit, may help bolster its value.

Although The UK-Japan deal is a great step towards a strong future of trading post-Brexit, economists have forecast a 5% loss of gross domestic product since leaving the EU single market and have stated that a robust deal with the EU is still top priority. 

If you have business interests in Japan, or are considering expanding into or importing from the country, then we can help you with your currency exchange. Read the official government Brexit guidance, and rely on our expert team to help you save time and money on your overseas payments with a moneycorp business account.