Wed. Jun 29th, 2022

TOKYO (BLOOMBERG) – Scrapping the Tokyo Olympics would inflict further damage on a Japanese economy already teetering on the brink of a double-dip recession, according to economists.

While Prime Minister Yoshihide Suga insists the Games will go ahead, he looks set to extend a virus emergency until the middle of June, barely a month before the Olympics are due to start on July 23. Analysts factoring in a longer emergency now see a larger chance of Japan suffering a second straight quarterly contraction.

A last-minute ditching of the Games on top of an extended emergency would inflict extra pain on the economy, slowing a hoped-for recovery in the summer and knocking back growth this year by as much as 1.7 percentage points, according to Bloomberg Economics’ Yuki Masujima.

“Cancellation of the Olympics would result from the virus situation deteriorating further and that’s what would have the wider impact on the economy,” said Mr Masujima, whose baseline scenario is that the Games will still take place.

While Japan won plaudits for containing virus cases in the first phase of the Covid-19 crisis, it is now paying the price for a slow vaccine roll-out as it keeps extending its emergency restrictions to stem the pressure on its medical system from high infection numbers.

Amid the ongoing virus emergency, the debate over whether the Games should proceed is intensifying. Recent opinion polls show a majority of the public against staging the Olympics this year, and a number of prominent business leaders have called into question the wisdom of pressing ahead.

The Asahi Shimbun, one of the nation’s biggest daily newspapers and a sponsor of the event, weighed in on Wednesday (May 26), calling for the event to be shelved.

If a cancellation occurs, economists agree it would come at a bad time, when the economy is struggling to recover.

“We shouldn’t be judging whether to hold the Olympics based on its economic impact,” said Dai-Ichi Life Research Institute chief economist Toshihiro Nagahama. “If the event can be done without causing any trouble for the medical system dealing with Covid, then we should do it. If not, we shouldn’t.”

Cancellation would cause a direct economic loss of about 1.4 trillion yen (S$17.1 billion), according to Mr Nagahama. That compares with a 1.8 trillion yen estimate by Mr Takahide Kiuchi at Nomura Research Institute, based mainly on lost consumption.

Most economists point out that a decision to ban spectators from overseas removed one of the last major growth boosts from the event. Many of them say most of the direct benefit to Japan from the Olympics has already taken place through construction.

Mr Nagahama said Games-related infrastructure investment worth about 7.5 trillion yen took place through the fiscal year that ended in March 2020 around the time the pandemic started uprooting Japan’s Olympic ambitions.

Not everyone sees a need to factor in the fate of the Games into growth calculations for the year.

Mr Kazuma Maeda, an economist at Barclays Securities, sees downside risks for the economy mounting and an emergency extension causing a bigger contraction this quarter. But the key to the recovery is not the Olympics, he said.

“It’s progress in vaccinations that’s the focal point for the mindset of consumers” rather than the Olympics, he said. “I think that’s more important.”

By rahul