Japan set to count cost of postponement

TOKYO • The historic decision to postpone the Tokyo Olympics yesterday over the global coronavirus pandemic is likely to pile on the pain for Japan's economy, already expected to be roiled by the outbreak, economists say.

While International Olympic Committee president Thomas Bach yesterday said his decision to delay the Games for the first time was "about protecting lives", the hosts will have to bear some of the brunt of the financial fallout.

At the end of last year, organisers estimated the total cost of the Games at around ¥1.35 trillion (S$17.54 billion). That is divided between the city of Tokyo, which is paying ¥597 billion, the ¥603 billion that is contributed by the Japanese organising committee, and the central government, which is paying ¥150 billion.

But the actual costs have been hotly debated, with a widely publicised audit report estimating national government spending from 2013 until 2018 at ¥1.06 trillion, nearly 10 times the budget.

Japanese companies have also poured money into the quadrennial multi-sport event in the form of sponsorships, paying out a record ¥348 billion.

And that figure does not include the partnerships signed between major Japanese firms and the IOC for rights to sponsor several Games, with multinational corporations including Toyota, Bridgestone and Panasonic known to have huge investments.

Tokyo 2020 organising committee chief executive Toshiro Muto said yesterday it is not clear who will pay the extra costs arising from the postponement of the Games.

"How exactly are we going to achieve the postponement? That will be discussed among the IOC, us and Tokyo," he said. "I am sure it will be very difficult."

Organisers will now have to figure out how to keep things running for another year, while making sure venues are up to date for possibly another 12 months. The Olympic Village is another headache as the complex is due to be turned into flats in August.

According to analysts at research consultancy firm Capital Economics, one key factor to consider in terms of how a postponement might hit Japan's economy is that most of the spending has already been made.

That means the effects of outlays, most notably on construction of new sporting venues, has already been factored into the gross domestic product in recent years.

A postponement, however, will drag down tourism as well as general consumption in the country, already under pressure after a controversial sales tax hike last year.

Last month, the number of foreign visitors to Japan fell 58.3 per cent compared to the year before.

While tourism is just a small subset of its GDP, making up just 0.9 per cent in 2018, the hit from the postponement may ripple through the economy and further depress local purchasing, which is already weak.

Officials had predicted a boost of ¥240 billion yen in spending from foreign fans visiting the Games this year, but that will no longer materialise.

Japan is already heading towards a recession, with its GDP contracting 1.8 percent in the October-December quarter, and economists at research firm Fitch on Monday revised its growth forecast for this year to -1.1 per cent from -0.2 per cent.

Fitch added the delay "could (further) impact GDP between 0.5 and 0.8 percentage point to our forecast".

Economists at SMBC Nikko Securities said yesterday that the delay would reduce the country's GDP this year by some US$6 billion (S$8.69 billion), but the losses would be recoverable when the Games are eventually held next year.

AGENCE FRANCE-PRESSE, REUTERS