Japan’s finance minister says calm returning but signals readiness to intervene over rising yen, while analysts point to signs a UK recession is being priced in

Britain’s decision to leave the EU continued to reverberate around the financial markets as several Asian governments prepared stimulus packages and some analysts warned that global markets were bracing for a full-blown recession in the UK.

Days after the UK referendum result wiped almost 8% off Japanese shares and sent the yen up sharply against the US dollar, officials in Tokyo have started drawing up plans to minimise Brexit’s impact on the world’s third-biggest economy.



UK loses triple-A credit rating after Brexit vote Read more

The economy minister, Nobuteru Ishihara, said on Tuesday that stimulus measures were likely to include assistance for small businesses.

“There are concerns about lessening the impact of the British referendum on Japan’s small and medium-sized companies,” Ishihara said.

“Taking steps to provide liquidity to small firms could be a big factor in economic stimulus steps that we compile.”

Sources said the government was willing to spend at least 10tn yen ($98bn) due to worries about exports, domestic demand and Japanese firms operating in Britain.

The Japanese finance minister, Taro Aso, said on Tuesday that financial markets were calmer but stressed the need to keep a close watch on currency markets and said he stood ready to respond if necessary.



Japan’s financial authorities have not ruled out intervening in currency markets to stem the yen’s rise, despite warnings against intervention from the US.



The US treasury secretary, Jack Lew, told CNBC on Monday: “Unilateral action to intervene would be destabilising.”



David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management, said: “Markets already appear to be pricing in a full-blown recession in the UK and rising recession risk in the rest of Europe.”

South Korea’s government said on Tuesday it would propose a supplementary budget shield of around 10 trillion won ($8.44bn), with Brexit turmoil as well as domestic risks seen as weighing on its decision-making.



The Chinese premier, Li Keqiang, said on Tuesday that the government would not allow “rollercoaster rides and drastic changes in the capital markets” in the wake of Brexit turmoil that took the yuan to five and a half year lows.



Li, speaking at the World Economic Forum (WEF) in the city of Tianjin, said China hoped for a united and stable EU and a prosperous United Kingdom, but added: “Against the backdrop of globalisation, it’s impossible for each country to talk about its own development discarding the world economic environment.”

The British prime minister, David Cameron, insisted on Monday that Britain’s vote to leave the European Union would not send the economy into a tailspin, even as Standard & Poor’s stripped the UK of its top credit rating.



As stock markets and the pound continued to decline, Cameron insisted the British economy was robust and could withstand the shockwaves created by the result.

Hours after he spoke Standard & Poor’s knocked the UK’s sovereign rating by two notches, from AAA to AA, saying an exit would lead to a “less predictable, stable and effective policy framework in the UK”.

At the European Central Bank Forum in Portugal on Tuesday, the ECB president, Mario Draghi, is due to speak on “The future of the international monetary and financial architecture”. On Wednesday the US Federal Reserve chairwoman, Janet Yellen, will participate in a panel.

Cameron, who is resigning as prime minister over the EU referendum outcome, will travel to Brussels on Tuesday to discuss the Brexit vote with Europe’s leaders.

Cameron will meet the European commission president, Jean-Claude Juncker, and the European council president, Donald Tusk, before a working dinner with his counterparts from the 27 other member states, at which the verdict in Thursday’s historic referendum will be the only item on the agenda.

With Reuters

