Will Tokyo’s 2020 Olympics mark a turning point for Japan? Akira Fuse, Investment Specialist, assesses the potential impact of the Games.
- The 2020 Olympics could help prop up aggregate demand. However, the positive effect is likely to be short-lived, and less pronounced, given that the economic impact of such events tends to be milder in developed economies than in developing ones.
- While inbound tourism and domestic consumer confidence may recieve a boost and support the government's bid to end deflation, in the long run, other factors, such as structural reform efforts, will play a bigger role.
- Rather than focus on transient trends, we base our investment view on a long-term perspective, which is why we prefer to look beyond the 2020 Olympics and target more sustainable developments.
The Tokyo Olympics may still be two years away, but it has already created quite a buzz. Unsurprisingly so. When Japan last hosted the Games in 1964, it was not only the first ever to be held in Asia, it also marked the country’s emergence from the post-war era and its return to the global stage as a major economic force. Will Tokyo’s 2020 Olympics be a game-changer for Japan once again?
Prime Minister Shinzo Abe clearly hopes so. After learning of Japan’s winning bid, he said, “I want to make the Olympics a trigger for sweeping away 15 years of deflation and economic decline.” Some have gone so far as to call the Games the “fourth arrow” of Abenomics, on top of the existing “three arrows” of monetary easing, fiscal stimulus, and structural reforms.
Indeed, Tokyo’s 2020 Olympics could offer a temporary boost to Japan’s economy. According to the Bank of Japan, this can take two forms. One is the increase in infrastructure spending ahead of the event; the other is the growth in inbound tourism.
Construction investment related to the Olympics, such as the building and refurbishment of stadiums, athletes’ villages, hotels, and transport development, is expected to reach ¥8-10 trillion. Projects are well underway and should peak by 2018. The central bank estimates that this could push up GDP by an annualised 0.4%-0.6% through 2018-19. The challenge, however, is that the Olympic building boom could turn to bust as infrastructure investment tapers off after the Games.