TOKYO (BLOOMBERG) - The 2020 Tokyo Summer Olympics will boost the Japanese economy as much as 30 trillion yen (S$350 billion) by the year of the Games, according to a report by the Bank of Japan released on Monday.
Construction investment triggered by the Games and increasing numbers of foreign tourists will help expand gross domestic product (GDP) by 0.2-0.3 percentage point on an annual average basis from 2014 to 2020, the bank said.
Olympic planning has been beset by cost overruns and other problems, with the main stadium design swopped for a cheaper one and the price tag soaring to six times that of the original estimate, according to public broadcaster NHK.
Even so, the BOJ projects the Games will have a positive economic benefit, with the boost to demand also helping to reduce the impact of a sales-tax hike planned for 2017.
"This is a reasonable estimate," said Koya Miyamae, an economist at SMBC Nikko Securities Inc. "There is no doubt that the Olympic Games is good news for the BOJ" as it will boost demand, he said.
Japan's economy will be lifted by as much as 0.6 percentage point in 2017-2018 from 2014 levels due to the preparations and "this is expected to reduce the negative impact of the planned sales tax hike," the bank wrote. The BOJ declined to give detailed breakdowns of the projections.
Preparations are already starting. Tokyo will spend 45.2 billion yen on fuel-cell vehicle subsidies and hydrogen refuelling stations for the Olympics as part of Prime Minister Shinzo Abe's plan to reduce Japan's reliance on nuclear power, a city official said in January.
The Games in Montreal, Seoul and Beijing had the biggest economic benefits among the Olympics since 1972 analysed by Mizuho Research Institute in an October 2014 report.
While spending is good for an economy, the Games are also known to damage government budgets. Montreal took 30 years to pay back its debt on the stadium, according to CBC News, and London had to triple its original spending plan in the run-up to the 2012 event.
The last Tokyo Olympics gave a boost to the economy, with a bullet train line and highways built before the 1964 Games, as well as large-scale development of the city.
Still, the effects of the Tokyo Olympics may be different from that time, the BOJ said. "There are big uncertainties about the quantitative boost and it's possible that this may be smaller than other host nations have felt in the past," the bank said, as Japan already has much of the needed infrastructure.