After the Virus: Japan’s Painful Economic Recovery

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After the Virus: Japan’s Painful Economic Recovery

Anticipation of an economic windfall in 2020 has fallen flat, but there’s still hope for the post-COVID future.

After the Virus: Japan’s Painful Economic Recovery
Credit: AP Photo/Eugene Hoshiko

Japan’s 2020 Olympic dreams are gone, the economy is in recession, and the COVID-19 pandemic has tragically caused nearly 1,000 deaths and counting in the country. But if this year’s anticipated boom has turned sour, better times could still lie ahead for the world’s third-largest economy as it slowly and painfully emerges from COVID-19.

First, the gloomy news, and there has been plenty of it.

After steadfastly pushing ahead with plans to launch the Tokyo Olympics on schedule in July 2020, with the coronavirus pandemic escalating worldwide the organizers were forced to face reality.

Amid growing international pressure, including threats of athlete boycotts, the International Olympic Committee (IOC) announced on March 24 that the Games would be pushed back to “not later than summer 2021” to “safeguard the health of the athletes, everybody involved in the Olympic Games and the international community.”

Postponing the summer Olympics and Paralympics is expected to cost the IOC up to $800 million, while the cost for Japan could run into the billions of dollars. While the Tokyo organizers have sought to trim expenditures, postponing the event could add another $2.7 billion to the cost of hosting the Games, which had already been estimated at up to $28 billion.

The sporting spectacular was expected to lure tourists, adding to a previous tourism boom that saw a record of nearly 32 million foreign visitors in 2019. The government hoped to bring in 40 million foreign visitors in 2020. From hotel renovations to airport investments and the launch of new airlines, the world’s biggest city spent big for the Games, now slated for July 2021.

Politically, Prime Minister Shinzo Abe was hoping for a popularity boost after investing substantial political capital in the Olympics, while Tokyo Governor Yuriko Koike faces re-election in July with management of the Games and the coronavirus now top of the agenda.

Nevertheless, not all analysts see the postponement as a financial disaster.

Capital Economics argued that most of the Olympics spending had already occurred by early 2020, with little evidence from previous events of a “feel-good” effect that might spur consumer spending.

“Spending during the Games themselves is small, perhaps just 0.2 percent of GDP, and much of this is diverted from spending in other areas of tourism and recreation,” senior Japan economist Marcel Thieliant said in a February 21 report.

Investment firm Nikko Asset Management (Nikko AM) estimated the cost of cancellation at “less than 0.5 percent of GDP.”

“Demand has evaporated due to the coronavirus, so the marginal negative impact of the postponement for this year is quite small. If the delay helps prevent further spread of the virus, it will help the global economy and also Japan,” said Naoki Kamiyama, chief strategist at Nikko AM.