Nomura

Will Japan avoid the risks of a post-Olympic slump?

  • The 1964 Tokyo Olympics uplifted the Japanese economy but was followed by a recession
  • Investment into the Games back then was 3.6% of GDP as opposed to 0.3% estimated for the 2020 Tokyo Olympics
  • We expect little post-2020 backlash in various aspects of the economy

Are post-Olympic concerns valid?

Japan hosted its first Olympics ever in 1964 as the country was going through a rapid economic growth period after World War II. With investments into the Games making up a significant proportion of its economic activities at the time, the reactionary fall afterward was clearly felt.

A total of 1.07 trn yen was invested not only for building Olympic venues and facilities but also for brand new infrastructure like the Tokaido Shinkansen bullet train line connecting Tokyo and Osaka as well as the Metropolitan Expressway, a toll road network covering the Greater Tokyo Area.

The amount was equivalent to 3.6% of nominal GDP in 1964, and the following year Japan's economy went into recession while a major correction occurred in the stock market. These memories from over half a century ago have prompted people to have more concerns than expectations when it comes to aftereffects of the 2020 Olympics.

However, things have changed between then and now, including the time period and the economic landscape. The only element that is the same as before may perhaps be that Tokyo is hosting the Summer Olympics.

As one of the most developed countries in the world, Japan now boasts well-maintained social infrastructure, including railway and road networks that allow travelers to explore all corners of the country. The infrastructure costs therefore will mostly come from building some venues, such as the New National Stadium which is being constructed at the same location as the main stadium for the 1964 Games in central Tokyo.

Including services costs and tourism expenditures, the total increase in demand is anticipated to total 1.8 trn yen, which is equivalent to 0.3% of GDP.

The much smaller proportion to GDP indicates prospects that the upcoming Olympics' impact on the Japanese economy will be more moderate than the 1964 Games.

There are other factors that could further work to lessen the effects. They include the following:

  • The total increase in demand of 1.8 trn yen is not necessarily concentrated during a short period of time but spread out over several years.
  • For FY20 when the Tokyo Olympics will be held, we forecast real GDP growth of +0.7%, which is lower than the forecasts of +1.0% for FY18 and +0.8% for FY19 and can be taken to mean that if there is no marked growth, there should be no fallback
  • Business conditions in the construction sector, which has been given a boost by the Tokyo Olympics, are likely to remain steady even after the Games thanks to ongoing projects including one to build the Chuo maglev shinkansen
  • Japan is already seeing increases in the number of inbound visitors that could surge during the Olympics, but statistics show that the number of foreign visitors to an Olympic host country does not necessarily drop following a Summer Games
  • Demand for TVs, particularly large-display and high-resolution products, is recovering after experiencing declines for several years but a sharp post-Olympic drop is not expected as the 2020 Games is not the only booster
  • Investment opportunities in the stock market involving Olympics-related shares are likely to come about over a four-year period -- two years in the lead up to and two years after the Games

Japan underwent significant changes around the time of the 1964 Tokyo Olympics. The government's current growth strategies are also designed to leverage changes in Japan beyond 2020, and are about to start bearing fruits. Japanese companies are looking to take advantage of this opportunity for their products, services, and initiatives at home and abroad. We think the 2020 Tokyo Olympics will help to draw the spotlights on innovation and rediscover the brand of "Cool Japan". There appears to be little concern over the post-Olympic blues.

Read the full report, Tokyo 2020 Olympics and Japanese equities, for full details on the scope of economic impact anticipated after the 2020 Tokyo Olympics.

Contributors

  • Hisao Matsuura

    Chief Equity Strategist, Japan

  • Masaki Kuwahara

    Senior Economist, Japan

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