Tokyo has been chosen to host the 2020 Summer Olympics, with an estimated economic benefit of at least $30 billion.
Hosting the Olympics could bring a wide range of implications to Japan on top of the mere economic impact, including strengthening Prime Minister Abe’s leadership.
The next announcement to watch for in the near term is the Japanese government’s decision how quickly they will increase the consumption tax rate.
Tokyo has been chosen to host the 2020 Summer Olympics, beating Istanbul and Madrid at the International Olympic Committee’s general session in Buenos Aires. There are some estimates out there about its economic impact, but this development is clearly positive to some industries in Japan such as construction, property, banks, entertainment, transportation, tourism, etc.
Last year, the 2020 Tokyo Bid Committee estimated that the economic impact of hosting the 2020 Games was around ¥3 trillion ($30 billion) for overall Japan and ¥1.7 trillion ($17 billion ) for Tokyo only (about £9.3 billion/$14.6 billion was spent for London Olympics). The Tokyo Metropolitan Government assumes that hosting the Olympics would benefit the Japanese economy by as much as ¥5 trillion or $50 billion (including capital investment and consumer spending). These numbers are actually not astronomical, but hosting the Olympics could bring a wide range of implications to Japan on top of the mere economic impact. It could help revitalize the aging infrastructure in Tokyo, inflate property values, promote discussions about casino registrations and special economic zones, accelerate *PFI/PPP, etc.
More importantly, it could strengthen Prime Minister Abe’s leadership, making it easier for him to push through political and economic structural reforms. Under the Japan Revitalization Strategy (revitalization of Japanese industry, strategic market creation plan, and strategy of global outreach), the government plans to achieve a nominal gross domestic product (GDP) growth rate of around 3% over the next 10 years and real growth rate of around 2%, and to increase per capita GNI by over ¥1.5mn ($15,000) in 10 years. Interestingly, 2020 is a key year for Abeomics. There are 26 concrete agenda items in Japan’s growth strategy, and actually 11 items, or more than 40% of total agenda items, have the year of 2020 as a target date.
The next announcement to watch for in the near term is the Japanese government’s decision how quickly they will increase the consumption tax rate from the current 5% to an intermediate target of 8% (and to 10% in the long-run). We are also interested in what kind of creative measures (such as corporate tax cuts, tax break for capital investments, etc.) will be announced at that time to offset the negative economic impact from the consumption tax hike. For the slow growth nation, there is certainly a full slate of interesting events for us to follow.
*PFI: Private Fund Initiative
*PPP: Public Private Partnership
*GNI: Gross National Income