Japan says it will continue to watch markets for Brexit impact

TOKYO - Japan will continue to closely monitor how financial markets react to the possibility that Britain could leave the European Union, a government spokesman said on Wednesday.

Deputy Chief Cabinet Secretary Hiroshige Seko made the comment in response to a question about whether Japan was willing to co-operate with Britain and the EU to stabilise financial markets.

Seko declined to comment on the yen when asked whether Japan would sell its own currency if a British vote in favour of leaving the EU triggered market volatility, but policymakers in major economies could struggle to calm markets if Britain's"leave" camp wins a referendum next week. "I recognise that the Nikkei stock index has fallen and Japanese bond yields have hit record lows, but I don't want to comment on specific levels," Seko said. "We will continue to closely monitor the situation." The European Central Bank would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain decide to leave the EU in the vote on June 23, officials with knowledge of the matter told Reuters.

The preparations illustrate the heightened state of alert. The pound and euro have lost value on fears a so-called "Brexit"could tip the 28-member bloc into recession.

Investors tend to buy the yen during times of uncertainty, and there is a risk that a Brexit could cause Japan's currency to surge even further. It has already gained more than 13 per cent against the dollar so far this year.

Japanese policymakers have tried to discourage speculative gains in the yen, because this tends to reduce exporters'earnings and increase deflationary pressure by lowering import prices.