Japan’s efforts to kickstart its economy and get growth back on track has been given a potential boost by the country’s successful bid for the 2020 Olympics and Paralympics.
Already referred to as the ‘fourth arrow’ of ‘Abenomics’, Japan and prime minister Shinzo Abe, who has made it his mission to turn the ailing economy around, will be hoping the event and inevitable investment in infrastructure will provide as big a boost to Tokyo as the 2012 Olympics provided to London, with the UK government estimating a £9.9bn trade and investment boost from the games held in London last summer.
Taku Arai, Japanese equities product manager at Schroders, notes that, while Japan seems to have benefited from being the ‘safe’ choice for the International Olympic Committee compared with Istanbul and Madrid, the celebratory mood continued into a 2 per cent rise in the Japanese equity market on the Monday after the announcement. Mr Arai adds: “Some of the most obvious beneficiaries of the Olympics, such as
construction and property companies, had already begun to move before the announcement as Japan had become the bookies’ favourite. However, that did not stop a further rally into these areas, along with sports-goods manufacturers and transportation companies.
“Official forecasts put the positive economic impact at only 0.3 per cent of GDP between 2013/20. This compares it with an unfavourable light with the equivalent estimate of 3.6 per cent at the time of the 1964 Tokyo Olympics.
“While it is probably correct that the impact will be less, it’s worth bearing in mind this figure relates only to specific Olympics expenditure and does not take into account related infrastructure investment prompted by the Olympics. Indeed, some of Tokyo’s infrastructure does date back to 1964 and Tokyo 2020 is precisely the catalyst required to modernise it. In addition, Tokyo would be the exception not the rule if initial cost estimates were not exceeded significantly.”
Simon Somerville, manager of the Jupiter Japan Income fund, agrees that winning the bid should be a big positive for Japanese people and their economy. He says: “Just as in London, the Olympics are likely to increase the promotion of sports throughout the country and create something of a feel good factor. Spending on Olympic buildings and facilities is expected to be ¥455bn (£2.9bn). The main costs are the new iconic Olympic stadium, nine other venues and the athletes’ village. Tokyo’s bid envisages a low-impact, compact Olympics with many of the 1964 facilities being reused. Eighty five per cent of the venues are within 8km of the Olympic village, which will be situated in the Tokyo Bay area.
“A further ¥552bn has been earmarked for transport expenditure, some of which is already in progress. The total budget of approximately ¥1trn is about 0.2 per cent of Japan’s GDP. Overall, securities company Nomura estimates the impact of the Olympics will be 0.5 per cent of GDP – in number terms pretty negligible.”
But while the GDP impact appears negligible, there are potential positives for Japan from the Olympics. Mr Arai notes: “The intangible affect on sentiment is also important, with consumer spending a likely beneficiary. Sentiment indicators had just been starting to flag, so this would be a timely boost if it materialises. It is another success for and completes a remarkable 12 months for him. The immediate impact is likely to boost his popularity and put him in a stronger position to implement ‘third arrow’ measures eagerly anticipated by the stockmarket. Optimists are already referring to the Olympics as the ‘fourth arrow’.
“To complete a good day for Japan, second-quarter GDP growth was revised up. Real GDP growth for the second quarter was revised upward from 2.8 per cent to 3.8 per cent year-on-year. Consumption and capital expenditure were stronger than initial estimates and this supports the market’s confidence for a steady recovery of the Japanese economy.”
Mr Somerville agrees the social impact of the Olympic bid will be more positive than the growth aspect, improving confidence among the Japanese people and increasing the feel good factor for Mr Abe.
“This increased sense of purpose among Japanese people should also mean that Mr Abe’s and Bank of Japan governor Kuroda’s pro-growth policies will become more effective. The Olympic bid decision will, in my view, also give increased force to Mr Abe’s ‘third arrow’ reform policy and further drive his initiatives for PFI [private finance initiative] and PPP [public private partnership] funding.
“Just as the 1964 Olympics demonstrated Japan had joined the industrialised nations, by 2020 I expect the Olympics should enable Japan to show the economy is back in shape following the 2011 tsunami and long economic crisis.”
