Tokyo 2020: a winless Games for the Japanese economy

Actress Satomi Ishihara and Paralympic athlete Aki Taguchi light the Olympic cauldron in Nahara, Fukushima, on March 25.KIM KYUNG-HOON / REUTERS

When on the 23rd, at the opening ceremony of the Games, the Olympic flame enters the Tokyo National Stadium, the Prime Minister of Japan, Yoshihide Suga, will be mentally crossing his fingers. Suga has insisted against all odds that this competition of competitions take place, despite the opinion against the vast majority of Japanese - 86%, according to polls, fear a new wave or a new variant of covid during the event-, health personnel and even some prominent companies and advertisers. Even Emperor Naruhito is "worried", according to the Imperial House.

The stakes are high in this tournament marked by covid, which will finally be held without an audience and with Tokyo under its fourth state of health emergency.

The prime minister - who has bet all his prestige, right now on the ground, just to celebrate the Olympics - risks his position in the general elections that must be called no later than October.

The country has pilloried a "loss of face" of epic dimensions.

Above all, in front of its neighbor and nemesis China, which next February will celebrate its own edition of the Olympic Games, the Winter Games in Beijing 2022. But, especially, the economy is at stake.

According to various analysts, given the limitations imposed on capacity and mobility, financially Japan has little to gain from holding this event.

But a lot to lose.

More information

• IOC chooses Beijing to host the 2022 Winter Olympics

• Organizers decide to hold the Tokyo Olympics without spectators due to the advance of the coronavirus

If everything had gone as planned when the Japanese capital presented its candidacy, these would have to have been the "Recovery Games" for the country.

Like those in Tokyo that in 1964 marked Japan's return to the international community after postwar ostracism, those in 2020 were supposed to celebrate the rebirth after the triple Fukushima disaster a decade ago, when an earthquake, a tsunami and the worst accident nuclear power plants in the world in thirty years left more than 20,000 dead and devastated that prefecture and the surrounding areas.

Even the postponement caused by the pandemic last year underscored that idea. The Games, said the then Prime Minister Shinzo Abe, were going to mark the recovery, yes, but this time not only Japanese but global, after the defeat of the virus.

It has not been exactly like that. Japan, overwhelmed in recent months by a fourth wave of infections, is holding its breath at the possibility that the event could become a hotbed of supercontagion unleashing a fifth wave. Or that the abnormality with which these games are held, turned into an immense bubble without foreign spectators and with the sports delegations confined in the Olympic Village, without alcohol - or free condoms for athletes - may become even more strange if it begins to detect an increase in infections that force the strict restrictions already in place to be tightened.

An analysis by the Dai-ichi Life Research Institute, signed by its chief economist Toshihiro Nagahama, estimates that the new state of emergency in Tokyo and the extension of the one in Okinawa, in the south, could mean a loss of 1.2 trillion yen in consumption.

"It is inevitable that, due to the state of emergency, there will be more pressure to restrict economic activity," says Nagahama.

The Daiwa Research Institute calculated before the new measures, announced this Thursday, that the economic benefits during the Games would stand at 520,000 million yen, of which 70,000 million will come from the spending of sports delegations and spectators (if there would be), and 150,000 million will come from the family units that follow the competitions from a distance.

The executive economist of the Nomura Research Institute, Takahide Kiuchi, also estimates the damage the new emergency will cause at about a trillion yen. Kiuchi believes that, had they been held under normal conditions, the Games would have generated a profit of 1.81 trillion yen. In his institution's blog, he points out that without spectators in the stands, the economic benefits would be reduced to 1.66 trillion yen, or 91.9% of what a Games at full throttle would generate. But Kiuchi warned then that "if holding the Games were to cause a drastic increase in COVID cases, thus forcing the Government to declare a new state of emergency, the resulting economic losses would be substantially greater."

In a similar sense, the consulting firm GlobalData. Its analyst Aditi Dutta Chowdhury comments that “major sporting events, such as the Olympic and Paralympic Games, generate investment in infrastructure, which reaches its highest level two or three years before the event. In the case of the Tokyo Olympics, the activities of the construction sector showed a great performance between 2018 and 2019. During the competition itself, the profits are generated by the consumption of the visiting athletes, the foreign public that visits the cities hosts and their surroundings, and the national audiences of the broadcasts ”.

Given these factors, Global Data believes that, given the uncertainty and the prohibition of foreign visits, the Games will contribute very little to Japanese economic growth, as they will "not compensate for the losses generated by the frequent restrictions in Japanese cities" imposed in the fight. against the pandemic.

According to the firm, the fact that the majority of the Japanese are against the celebration of the sports mega-event can harm the attendance to the different competitions.

And remember that the previous training sessions of some delegations have already been canceled, with the consequent loss of profits.

More information

• Coronavirus strikes again in Asia

• Japan's economy returns to the red due to the pandemic

But, nevertheless, what would be a disaster would be a large outbreak of coronavirus as a result of the Games, which would force new restrictions to be imposed in a country where the vaccination campaign started at a very slow pace, it has only picked up speed since the last month, and in which less than 15% of its population, of 120 million people, has already received the full regimen (two doses).

Like the rest of the large economies, with the exception of China, Japan's has been hit hard by the pandemic. This week, Suga announced a new state of health emergency that will be in effect until August 22 in Tokyo, given the increase in covid cases. It is the fourth that the capital lives. The third, which affected nine other prefectures, was milder than the previous ones, but lasted about two months. The previous emergencies caused a contraction of the Japanese GDP of 4.8% in 2020, and 3.9% in the first quarter of the year, after a revision to the initial data.

Before the first infections with coronavirus began to be detected in its territory, Japan had already entered 2020 with a delicate situation. The impact of the super typhoon Hagibis and the increase in its consumption tax, from 8 to 10%, had left its economy in 2019 on the brink of technical recession.

To try to alleviate the economic effects of the covid, the Government approved throughout 2020 gigantic stimulus packages worth 3 trillion dollars. A measure that expanded by 102 trillion yen the already huge Japanese debt, the largest of the industrialized countries: 1,216 trillion yen, or about 12.3 trillion dollars, 257% of its GDP. And, according to the Nikkei newspaper, Suga is considering a new round of stimulus before calling elections in September, which some analysts estimate between 20 and 30 trillion yen. In his remarks when announcing the new state of emergency, the prime minister did not rule out giving a new injection if deemed necessary.

The latest restrictions - and the slowness of the vaccination campaign - are expected to keep the indicators in negative territory in the period between April and June. But recovery should begin in the second half of the year, once vaccinations have accelerated and consumption can return to its usual patterns. If all goes well, and there is no fifth wave that forces new strict measures, the OECD expects the end of 2021 with a recovery of 2.6%; By early 2022, pre-pandemic GDP levels would be reached and in that year the economy would grow by 2%.

"The external environment is, in general, favorable to Tokyo in 2021, given the early recovery of the Chinese economy and the super stimulus of the United States," calculates the credit insurance company Euler Hermes, a shareholder of Solunion.

The second largest economy in the world is the main Japanese trading partner;

the first, his great political and military ally.

There are some signs for cautious optimism.

In May, exports soared at their highest rate since 1980, 49.6%.

Sales to China increased 23.6%;

to the US, 87.9% A survey by the Bank of Japan on the confidence of manufacturers indicated at the beginning of this month that large firms expect to increase their capital spending by 9.6% in the fiscal year that just ended. in Japan in March 2022.

But beyond the specific conjuncture, Japan continues without solving its perennial structural problems that have led to almost flat growth in the last three decades. An aging population - the pension and public health system is one of the factors that contribute, precisely, to the strong national debt -, delays in digitization compared to other advanced countries and the scarce incorporation of women into the world of work - where it faces lower wages than men's - are some of the plagues of the world's third largest economy. Low productivity is another: the Japan Productivity Center indicates that national productivity per worker fell by 0.3% annually between 2015 and 2019, while productivity per hour only grew by 0.4% in the same period. They are, according to the Japanese Government itself,the lowest figures among the Group of Seven countries, the most developed in the world.

Paradoxically, the drastic changes caused by the pandemic may open the door to the introduction of labor reforms that would have previously seemed impossible, such as telecommuting and flexible hours in a work culture with a long-established face-to-face tradition. According to a survey by the local government of Tokyo in July 2019, then only 25.1% of the companies established in this capital allowed remote work; in April of this year, they were already 56.6%.

In its growth strategy for the coming years, presented in June, the Suga government has set itself decarbonization - it has promised to achieve carbon neutrality by 2050, for which it has adopted a two trillion yen fund to facilitate the ecological innovation, among other measures- and digital transformation.

Among other proposals, it plans to make the supply chain for the manufacture of vehicles less prone to emissions, and to encourage the use of artificial intelligence in activities such as the sale of financial products or the inspection of vehicles.

It also includes the creation of a new digital body that simplifies the operations of local and national governments.

More information

• The climate battle will determine who leads the world economy

The economic stimulus strategy also foresees that this country, caught between its intense economic relationship with China and its close security ties with the United States, will strengthen its economic security - in the face of tensions between Beijing and Washington - by improving its supply chain. of semiconductors, one of the weaknesses of its economy exposed during the pandemic.

Japan has set out to reduce the risks of chain disruptions for key products, from batteries to rare earths to medical equipment. The strategy also highlights the importance of attracting semiconductor manufacturers to Japan, and of propping up the competitiveness of this domestic sector. According to the document, the global market share of

Japanese

chips

had fallen to 10% in 2019, when in 1988 they accounted for half of world sales. In contrast, almost two-thirds of domestic demand is covered by imports.

Although the most drastic changes, obviously, will have to wait. Tackling the pandemic remains the number one priority. And, in any case, the political calendar will play an important role: in September Suga is submitted for reelection as leader of his party, the Liberal Democratic Party (PLD). Before October 21, when the mandate of the deputies in the Lower House expires, general elections must be held. In the summer of 2022, those of the Upper House.

“For Suga, the main thing is to ensure the long-term survival of his Administration. And when you think about economic reforms, those that need to be implemented are on the supply side: what to do with bankrupt SMEs, unpaid loans, regions ... But they are painful reforms for citizens and society in general. So given electoral considerations, the Administration will be more focused on the demand side for the time being. For major reforms, we will have to wait until after the summer of 2022 ”, calculates Yasuhide Yahima, chief economist of the think tank NLI Research Institute, in a videoconference organized by the foreign press center of Japan.

By the autumn elections, the vaccination campaign should have already accelerated.

And by now it will be clear what the real dividend of the Games has been.

"They may not bring a substantial financial benefit," adds analyst Chowdhury, "but if successfully held, Japan can become a pioneer in how to host a major international event at an unprecedented time."

An event very followed by the market

The Japanese stock market remains a great unknown for most investors around the world.

So far this year, the performance of the Nikkei 225, the main Japanese stock index, has been very irregular.

He started the course with energy, then deflated little by little.

Since January, the accumulated profitability is 5%.

Although experts believe that the impact of the Games on the Japanese economy will be limited and that it is already partially discounted by prices, they do believe that Japanese stocks could become fashionable if the event passes without health complications. “The punishment suffered by Japanese stocks seems excessive given the good performance of corporate results, which have far exceeded analysts' expectations. The profit rate has soared 19% since the end of 2020, even more than in the United States and Europe. Therefore, it is a good time, due to its cyclical recovery and attractive valuation, to increase positions in the Japanese Stock Market ”, Roberto Scholtes Ruiz, head of investment in Spain at UBS, defends in a recent report.

For her part, Silvia Dall'Angelo, an economist at Federated Hermes, recalls that the positive effect of the Games for the host country is less in developed countries than in emerging ones. In the specific case of Japan this year, the COVID backdrop is likely to further limit the already meager gains from the Olympics. Current travel restrictions mean that tourism will receive a very limited boost from the event, while consumer confidence - still at historically low levels - will benefit from the success of the Olympics as well as from a further acceleration in the deployment of the vaccine.

Diego Elices, general director of investments at A&G, thinks that the Games may have a broader effect on the world market: “Depending on how events unfold, the perception of a definitive economic reopening or the feeling that the pandemic may drag on, it could impact the bags. The mere fact that they are held is already good news and can be an injection of optimism. "