TOKYO -- The surprising setback for Prime Minister Theresa May in the U.K. general election Thursday increases the uncertainties surrounding Britain's planned exit from the European Union and leaves Japanese companies with local operations bracing for instability.
May's Conservative Party lost its outright majority in Parliament as the country prepares for upcoming Brexit negotiations with the EU. These affected Japanese companies may have no choice but to postpone key decisions related to tariffs, permits and approvals. Sharp swings in foreign exchange rates could throw earnings off track as well.
"This uncertainty has made it more difficult for companies to make decisions," said Osamu Tanaka, chief economist at Dai-ichi Life Research Institute.
Roughly 630 companies from Japan have operations in the U.K., according to Tokyo Shoko Research. Nissan Motor and Honda Motor are among those that maintain production sites, and companies in a wide range of industries including retail, finance and real estate have a presence as well.
Hitachi, which builds train cars in Britain and plans to construct two nuclear power plants in the country, says "the U.K. will continue to be a focus market." Though Brexit's impact on earnings likely will be limited, "we will carefully watch the developments going forward," a spokesperson for the industrial group said.
Japan's megabanks -- Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group -- hold a "passport" to operate anywhere in the EU through their European headquarters in London. They are already considering whether to move those offices to another EU country ahead of Brexit, but the election outcome only makes the road ahead harder to discern.
"If a government with a weak hold on power emerges, the Brexit talks may go out of control," said a person familiar with one of the megabanks. The banks' European businesses could suffer if demand for corporate funding falls.
Daiwa Securities Group is considering establishing a new base in Frankfurt while analyzing developments around the Brexit talks.