Japan’s Olympic boost will be mostly psychological

September 9, 2013

By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Japan’s Olympic boost will be mostly psychological rather than financial. Tokyo’s victory in the race to host the 2020 summer Games will help Prime Minister Shinzo Abe’s efforts to rebuild the country’s confidence. But expectations that an Olympian investment spree will lift Japan out of deflation are as misplaced as fears that it will trigger a debt crisis.

When Tokyo hosted its first Olympics in 1964 – its planned 1940 debut was cancelled due to World War II – the event signalled Japan’s emergence as a modern and technologically advanced economy. If Abe succeeds in lifting the country out of almost two decades of economic stagnation, the 2020 Games will offer a podium to tell the world about Japan’s revival.

Any additional spending will be modest, however. Tokyo has opted for a low-key bid which will re-use many existing facilities. Its proposed investment budget is just $4.4 billion, which is covered by an existing reserve fund. The $3.4 billion cost of running the actual event will be covered by ticket sales, merchandising and sponsorship.

It’s true that Olympic budgets tend to suffer from hyperinflation – London spent three times as much as originally planned on the 2012 Games, and playing the host in 2004 added to Greece’s already-serious debt problems. But even an over-budget event would be a rounding error for the Japanese government, which expects to spend $930 billion this year.

The promise of visiting athletes, coaches, television crews and spectators will also help to build new hotels, expand restaurants, and spruce up shops. Even here, however, the effects are limited. Tokyo last year estimated the Games would add almost 3 trillion yen ($30 billion) to the economy and create 150,000 jobs. That amounts to just an extra 0.5 percent of GDP. Besides, some of the investment would have been brought forward from future years, or made anyway.

Tokyo’s win has given stocks a boost: in six out of the last seven cases, national stock markets rose by an average of 15.9 percent in the 200 days after the choice was announced, according to Nomura. But in the longer run, a feel-good effect on consumption is probably the best Japan can hope for.

 

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