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Olympics Postponed: What Economic Costs Japan face?

Dr Rajaram Panda Writes :

The coronavirus – COVID 19 – that originated in the Chinese city of Wuhan and has swept now over to 177 countries causing incalculable cost to human lives and economies also led to the cancellation to many international sports events, the biggest casualty being the postponement of the Tokyo Olympics due to have started from July 24 to August 9. For Japan, which had invested heavily in the preparation of the event, the costs are heavy. Indeed, the postponement is a double whammy for Japan, observes Patrick Peinmoeller. According to him, the economic and psychological toll on the nation is huge.

While nations are announcing lockdown in order to stem the spread of the deadly virus for which no vaccine is available at present, and people are adjusting to their suddenly new life situations, the Japanese taxpayers have a big new worry to add to their plate. Hosting of the Olympics was a high point in Prime Minister Shinzo Abe’s political career. That has now been suddenly dented. Now his government’s priorities have shifted towards arresting further spread of the virus that has already caused 52 deaths.

In an unprecedented announcement, the government made a passionate plea to the people to avoid participating in the Hanami festival, the annual sakura viewing, a favourite among the Japanese people in order to check community transmission of the virus. Repeated requests are being made in the television urging people to remain indoors. Known for law-abiding, Japanese people have responded to the call for self-imposed isolation so far. Should the situation deteriorate, a complete lockdown could be unavoidable. Thus far, Prefecture-based efforts are being made to address the issue.

Hosting the Olympics was a dream for Abe, which his grandfather could not realise in 1964 as he resigned before the event. Therefore, the Abe government left no stone unturned and made massive investment to organise the event. The New National Stadium was built by Azasa Sekkei Co for $1.4 billion. It was completed in November 2019. Besides, most other real estate investments in preparation of the Olympics were completed, paid for or financed. What it implies is that postponement of the Games may affect down-payments on loan, though may not be the physical upgrades.

Heavy economic costs

The Abe administration had made a pre-Olympic stimulus package for construction, development design and for other services. The total costs had risen beyond $12 billion. Separately, Tokyo city was expected to spend another $7.4 billion on projects, directly and indirectly related to the games such as installing barrier-free facilities for the Paralympics, training programme for volunteers, and advertising and tourism plans. It is estimated that the total cost that Japan would have incurred is to the tune of $28 billion, almost quadruple of the $7.4 billion declared when Tokyo won the bid in 2013. Of these, only $5.6 billion of operating costs were covered with revenues from sponsors, ticket sales, marketing, and IOC contributions. The Games are postponed till next year. Had it been cancelled altogether, it would have been disastrous for Japan.

Hotel and service industry expected to welcome over 6 lakh visitors from overseas during the Games. After the consumption tax was increased from 8 to 10 per cent last October resulting in depressed consumer spending, the Japanese government expected an image boost and bigger tourism dollars. That remains unrealised for the time being. As a result, the loss of over two decades, to host the games, shall continue further.

Abe launched his economic programs, known as Abenomics with three arrows of strict monetary policy, fiscal consolidation and a growth strategy. This has marginal positive effects. People thought the Olympics would offer a good opportunity to spur growth. That is unlikely to happen now with the Games’ postponement.

In terms of real numbers, economic growth rate is expected to be lower by 0.5 to 0.8 percent. When visitors from China and South Korea started cancelling their trips in February around stemming from fears of the coronavirus spread and uncertainty about the Olympics, things started looking grim. Even if the Games are held in 2021, costs would inevitably escalate as maintaining the venues and storing of materials would add to the cost. It is estimated the cost for delay would be to the tune of $2.6 billion.

The economic impact of cancelling the Games is not limited to within Japan. US broadcasting giant NBC sold a record-breaking $1.25 billion worth of advertisements for the Tokyo Olympics, which could now be deferred. The global sports industry and advertising industry will have to rethink the next 24 months.

The Olympics postponement shall be a dent on the nation’s and its people’s psychology. The cost of the psychological damage that this would incur is difficult to measure, however. Japan perceived the 1964 Tokyo Olympics as a coming-of-age story. After it emerged from the ruins of the World War II, it experienced high economic growth in the sixties and therefore saw the 1964 Games, world’s biggest sporting event, as debuting on the world stage. It demonstrated to the world that Japan is a rapidly advancing Asian democracy.

The two lost decades of the 90s and 20s were further followed by the traumatic experience of the triple disaster of March 2011 – great eastern earthquake, tsunami and Fukushima nuclear accident. It was followed by a series of accounting and quality scandals from Japan Inc. The Olympics was seen as the opportunity to redeem the country. No efforts were spared by all stakeholders in Japan to see that Olympics become a showcase of Japanese pride in 2020. Regrettably for the Japanese, that was not to be. The disappointment and misfortune among the people could lead to negative influence and depressed consumer spending, denting the economy further and aggravate Japan’s growth problem.

As if these developments were not enough, the spread of COVID 19 has presented with unprecedented challenges to Japan. As the infection cases surge and death tolls increase, Abe promised an unprecedented package of steps to cushion the world’s third-biggest economy from the pandemic. Though details are yet to be announced, measures could include fiscal stimulus, monetary steps and tax breaks for companies. At the time of writing this, infections have climbed to more than 1,500, with 52 deaths.

According to Abe, the size of the package will exceed that compiled in response to the global financial crisis of 2008, which was worth a total 57 trillion yen ($528 billion). The government will come up with a supplementary budget within ten days and try to get it through the Diet at the earliest. Part of the measures will include arrangements so that “small and midsized companies can borrow at zero interest from private financial institutions”. Other measures could include cash payouts directed at households and companies that need the most.

The recent surge of the COVID 19 in much of Europe and the US has led to lockdowns of billions of people around the world. Though Abe has held back from declaring a state of emergency, he announced plans to approve the drug Avigan that has proved helpful in treatment. Now that the focus has shifted from the disappointment of postponing the Olympics to the more pressing task of arresting further spread of the coronavirus, Abe shall get some breathers to reassess the economic costs that Japan incurred in deferring the event to 2021. Japan sprang back to its feet in the nation’s history several times from catastrophic experiences and demonstrated resilience. Abe is confident this time also the bad phase shall pass, and a new invigorated Japan shall emerge.


Professor Rajaram Panda is Lok Sabha Research Fellow, Parliament of India and Member, Governing Council of Indian Council of World Affairs, New Delhi. He was also Senior Fellow at IDSA and ICCR Chair Professor at Reitaku University, Japan, E-mail: [email protected]

Disclaimer: The views expressed are those of the author and do not necessarily represent the views of the organisation that he belongs to or of the USI of India.

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