The 1964 Tokyo Olympics impact was nothing short of a watershed as an economic impact moment. It propelled the then war-torn languishing economy to a high growth one. It left an ever-lasting impact on the economy. The budget of the Olympics was doubled to make it grand, which resulted in high-speed railways, highways and roads which made the perfect preview for the technological boom that followed in the 1970s and 1980s. With the Tokyo Olympics’ 2020, they are hoping to push the economy from the deflationary trap. Let us look at the Economic Impact of the Olympics on the Japanese economy.

Economic Impact of the Tokyo Olympics

 According to the Bank of Japan, a boost to the economy can take two forms. One is the increase in infrastructure spending ahead of the event; the other is the growth in inbound tourism. 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.

Tourism Boom

Japan has seen a boom of inbound tourism. Since the announcement of Tokyo Olympics way back in 2013, there has been a surge and a strong impact in inbound visitors. Japanese government too on its part relaxed its visa rules to tap into the boom. It had set up a target of 40 million visitors till 2020 but the number was achieved smoothly in 2018. Although coronavirus has put a severe dent on the number from rising as most traffic came from China which accounts for one-third of total spending by foreigners

tourism surge in Japan as an impact of announcement of Tokyo Olympics

Rise of Consumption

As discussed above- Inbound tourism has become a big economic engine, with a record number of 28.7 million foreign visitors entering Japan in 2017 alone. Tourist spending hit an all-time high of ¥4.4 trillion, with shopping and accommodation comprising close to two-thirds of expenses. This has helped in growing the economy but unfortunately, there is a spanner in the works now.

Rise of visitor spending in Japan

Construction

The impact from this sector would be relatively less which is kind of unique to this edition in the Tokyo Olympics. Since the facilities are being reused and Tokyo already boasts of a world-class infrastructure the amount spent on construction isn’t as significant as it was in 1964. When Mr Abe’s grandfather, then prime minister Nobusuke Kishi, brought the 1964 Olympic Games to Tokyo, the country was still in the early stages of economic development. At that time, Japan was enjoying rapid GDP growth. The Olympic-related investment, estimated at around ¥1 trillion, provided a further fillip.

Among the many infrastructure projects was the construction of the first bullet train line between Osaka and Tokyo, new highways and subway lines, as well as large-scale development of the city. With a nominal GDP of ¥29.5 trillion in 1964, the ¥1 trillion investment was equivalent to around 3.4% of GDP.

This time, the impact of the Games will be smaller because Japan’s economy, at around ¥546.5 trillion (as of 2017), is much larger and less construction is needed. The estimated Olympic-related investment of about ¥8-10 trillion corresponds to approximately 1.5%-1.8% of GDP.

estimated construction investment in olympics for japan

Impact of Corona Virus

Although in hush voices, people have begun to speculate whether the Tokyo Olympics will be cancelled or not. Corona Virus is showing no signs of slowing down. Recently, the Olympic Committee had to cancel a volunteer training programme due to the outbreak.

An ever-lasting impact on the Tokyo Olympics is threatened by Coronavirus, which are slated to begin from 24th July. Japan has been badly affected by Coronavirus also termed as the COVID-19 by the World Health Organisation. As of February 22nd, there have been 28 confirmed cases of Corona Virus in Japan. There are also over 175 confirmed cases on the quarantined Diamond Princess Cruise ship, which is just off the coast of Yokohama, Japan. The situation has created both political and economic tensions across the globe. COVID-19 is on the cusp of being a pandemic that spreads everywhere. It has affected over 75000 people and has killed over 2000 people (on the day of writing). Over 50 countries have closed their borders to Chinese arrivals.

Economic Outlook

The economic impact and outlook of the Tokyo Olympics looks grim. According to a report by Time and research, firm Capital Economics, COVID-19 will cost the world economy over $280 billion in the first quarter of this year, meaning that global GDP will not grow from one quarter to the next for the first time since 2009. 

Japan’s latest gross domestic product (GDP) data showed an economy badly in need of a boost. Fourth-quarter GDP plunged by 1.6 per cent quarter-on-quarter, below economists’ estimates of a 1 per cent decline, making it nearly as bad as the 1.9 per cent quarter-on-quarter fall seen after the 2014 sales tax hike.

Tokyo announced a 26 trillion yen ($233 billion) stimulus package in late 2019 to buffer the economic impact against the trade war and the anticipated post-Tokyo Olympics slowdown. However, the government may now face pressure for further fiscal spending, with the Bank of Japan also expected to further loosen monetary policy.

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Is the situation similar to Zika Virus in 2016?

In one word, No. During the Rio’16 Olympic games, Zika Virus was in full swing but the games went on as planned. The difference lies in the fact that Zika is transmitted by mosquitoes and impacts pregnant women. Whereas Coronavirus is highly contagious and can impact a wide spectrum of people. It poses a far greater risk to the athletes than Zika Virus.

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Will the Tokyo Olympics take place?

At this point of time, any comment would be nothing short of mere speculation. In an address to legislators and Japan Times, Japanese Prime Minister Shinzo Abe quashed the plans of the event being scrapped- “I’d like to make it clear that there have been no talks or plans being considered between organizers and the International Olympic Committee since the World Health Organization declared an emergency.” The IOC said in a statement to USA TODAY Sports and other media outlets that it has been in contact with the WHO and its own medical experts and “we have full confidence that the relevant authorities, in particular in Japan, China and the World Health Organisation, will take all the necessary measures to address the situation.” Experts believe that if by the month of May, the coronavirus situation isn’t contained then it might just get cancelled.

The organising committee is taking a series of steps to ensure that there are no hiccups and all safety measures are in place for a smooth and successful implementation to ensure no strong impact on Tokyo Olympics. At the same time, they are also bracing themselves for the worst-case scenario. A coronavirus countermeasures task force has been set up to contain the situation.

In a press release, the organising has stated, “Tokyo 2020 will continue to collaborate with all relevant organizations which carefully monitor any incidence of infectious diseases and we will review any countermeasures that may be necessary with all relevant organizations.” The Japanese and the Tokyo Metropolitan Government have established groups to respond to issues related to coronavirus.

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