Japan wants Britain to have frictionless trade with the European Union after Brexit, its ambassador said Thursday, insisting a damaging no-deal scenario should be avoided.

Japanese companies are looking to expand their investment in Britain but are holding back due to uncertainty over Brexit, Koji Tsuruoka said during a talk in London.

However, he insisted Japanese carmaker Honda's decision this week to close its plant in Britain had nothing to do with Brexit.

"Frictionless trade, we fully agree with that. Whether that is through a customs union or other means is up to the negotiation," Tsuruoka said on the Brexit talks.

"But the minimum that Japanese companies would like to pursue is an effective supply chain that goes beyond the borders of the UK and the EU." Britain is heading towards leaving the EU without a deal on March 29 unless one can be struck between London and Brussels that British MPs can agree to, in the remaining weeks.

"I still believe there will be no no-deal, because no-deal is going to be extremely damaging and put many things on halt," the ambassador said. "It can and should be avoided."

Nissan earlier this month axed plans to make its X-Trail sports utility vehicle in Britain, citing "business reasons" but also Brexit uncertainty.

"Unless you can anticipate what happens next, it's very difficult to make decisions that involve certain risks," said Tsuruoka.

He said that since the boom of Japanese investment in Britain began in the early 1980s, Japanese companies had seen the UK as a springboard to export into the EU.

Forty per cent of the total Japanese investment into the 28-country bloc comes into Britain, he said.

"The amount of investment is not being reduced; it is being held back," said Tsuruoka.

"Existing companies will look into expanding their business but all of these investments were put on hold because of the uncertainty." From Brexit, "the challenge is to minimise the adverse effect or perhaps open opportunities for new markets."