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Japan Hopes for a Post-Coronavirus Olympics

The cancellation is another blow to a battered economy as virus numbers creep up.

Using a lantern to preserve the Olympic flame
A staff member picks up a lantern to preserve the Olympic flame during the "Flame of Recovery" special exhibition at Aquamarine Park in Iwaki, Fukushima, Japan, on March 25. Clive Rose/Getty Images
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Faced with nothing but bad choices, like most of us, and after weeks of delay, the Japanese government finally bowed to the inevitable this week, announcing that the Tokyo 2020 Olympic and Paralympic Games are the latest victims of the coronavirus pandemic and agreeing with the International Olympic Committee (IOC) to put off the event until sometime in the next year.

The decision represents a blow to Japan, which had been promoting the games at the highest levels. That may be why the announcement came directly from Prime Minister Shinzo Abe and the IOC, rather than the officials organizing the event or the governor of Tokyo. Abe said that the move was taken at his request “ in order to have the world’s athletes compete in their very best condition and to create a safe event in which the spectators can have peace of mind.”

The pressure to act had been building, even as the IOC said just two days prior to the announcement   that it would take up to four weeks to assess the situation. The idea of going ahead became untenable when both the Canadian and Australian Olympic committees called for a delay. Canada even came up with a tagline for its demand: “postpone today—conquer tomorrow.” Adding to global concerns was the fact that COVID-19 has spread far beyond Asia, with the United States and Europe now ground zero, while East Asian countries appear to have the virus under relative containment.

The announcement comes at an already troubled time for Japan’s economy. Following a consumption tax increase last October, gross domestic product growth had already turned negative in the last three months of 2019, with a severe contraction at a 7.1 percent annual rate. As the coronavirus shock waves rippled across Asia, economists began hurriedly marking down their forecasts for the first and second quarters of the year, with a consensus that Japan was now entering a full-blown recession. Goldman Sachs estimates that Japan’s economy will now contract at a 4.5 percent rate in the first quarter and drop an additional 7.2 percent in the second quarter.

[Mapping the Coronavirus Outbreak: Get daily updates on the pandemic and learn how it’s affecting countries around the world.]

The games represented more than just money, however. The 1964 Olympic Games were an iconic event for Japan and are still invoked as a symbol of the golden era of economic strength that put a vanquished nation back on the global stage in record time, rising from near total destruction in 1945 to become, for many years, the world’s second-largest economy. Given that it had a population that was just 14 percent of China’s, an inconvenient location far from the economic centers of Europe and the United States, and a total lack of the raw materials and energy needed to propel an industrialized economy, this was no mean feat.

The Abe government had hoped that the 2020 Games could be used to demonstrate a Japan that was back after the nearly 30 years of economic stagnation that had followed the boom years and knocked the country to third place in the global charts after China’s striking rise.

Japan has so far avoided the worst of the pandemic itself. After early negative headlines about the outbreak on the Diamond Princess cruise ship in Yokohama, Japan, it has largely fallen off the radar. With a reported 1,387 cases, it is now the 29th most-affected country, even though heavily hit neighbors China and South Korea account for about one-half of its foreign tourists.

No one has provided a definitive reason for this apparent anomaly, although theories abound. One hypothesis is that Japanese culture has long embraced “social distancing,” with handshakes still the exception and people avoiding face-to-face situations even on crowded trains. In addition, sneezing or coughing in public is usually met with a nasty sideways look, while the wearing of masks is widespread, especially in the spring pollen season.

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The other theories are less benign. One: that the government is covering up the true state of affairs by restricting access to COVID-19 tests. (To get tested, you need to have symptoms and call a special hotline.) Another theory in this vein suggests that the government could cover up COVID-19 deaths by categorizing them as simply pneumonia, which would require a fairly broad conspiracy within the medical community when it would seem to have the opposite goal in mind. The remaining theory is that Japan is just pushing back the inevitable. A government panel of experts on Thursday said new infections were probably widespread—a determination that allows for Abe to declare an emergency—while a new study done on the passengers from the Diamond Princess found that 40 percent of those testing positive had no symptoms and therefore could be silent spreaders. This is, of course, a potential concern for all countries, not just Japan.

There are signs now of increasing worry. Tokyo Gov. Yuriko Koike went on television Wednesday night to announce a series of measures to prevent a possible spike in the number of cases. Her news conference came as Tokyo reported 40 cases, a doubling from the previous day. On Thursday, officials reported an additional 47, taking the Tokyo number to more than 250. While still a small number in the world’s biggest urban area, it is, after all, how other regions started on the road to massive problems.

Koike’s measures were pretty tame by newly emerging global standards. She asked everyone to stay at home for the weekend and said that people should avoid enclosed places with poor ventilation, places where many people gather, and having close conversations. No mandatory lockdown or closures of businesses were announced, at least for now. The announcement was enough to send Tokyoites to the supermarkets the next morning, with rice, cooking oil, and meats quickly emptying out, a phenomenon not previously seen in the city, except regarding masks, alcohol-based cleaners, and, of course, toilet paper.

Organizers for the games are now hard at work on how to repackage everything, shrinking a process that has taken seven years into a matter of months. This is an area where Japan typically wins the gold. In 2011, after violence-wracked Egypt was determined to be an unsuitable place for the upcoming 2012 annual meeting of the World Bank and International Monetary Fund, Tokyo was given the task, putting it all together in record time without an operational hitch.

The costs are another issue, since all of this will blow budgets out of the water. But the figures look large only in the “pre-COVID” era of spending. With the United States now spending an initial $2 trillion, the total $12 billion budget for the Olympics looks like a rounding error. Goldman Sachs said in a new economic forecast for Japan that “postponing the Olympics will be quite limited compared to the economic fallout from COVID-19 itself.”

Organizers have not given a figure, although the Nikkei financial newspaper quotes sources as saying it would be around $3 billion in the official budget, while the corporate giants who each pay around $120 million for the right to be top-tier sponsors will also presumably get another year to use the Olympics as part of their advertising and marketing. Small travel-related companies in Japan may not be so lucky with expectations that some will not be able to survive the twin whammy of a postponed Olympics and a COVID-19 downturn in business.

One mitigating factor is that the games will—if all goes well—go ahead at some point rather than be canceled outright. Ever since the economic buildup for the games began, economists had forecasted a post-Olympics hangover with a potential contraction in 2021. While that might still happen, at least the specter is put off for another year. On balance, there is a better economic bounce from a games where visitors are able to fly into the country in a renewed airline market and go out to celebrate instead of self-quarantining in hotel rooms.

Abe’s announcement made clear that his bureaucrats had already been up late at night preparing for this eventuality. He said that the games would still be called “Tokyo 2020.” That alone saves an awful lot of money that would be needed for all the new signs and means that souvenirs will not need to be thrown out. In addition, he has optimistically pivoted the games to represent “proof that humankind has defeated the novel coronavirus (COVID-19).” For Abe, already set to leave office in 2021, a renewed Olympics could be a powerful final legacy.

William Sposato is a Tokyo-based writer who has been following Japan’s economy and financial markets for more than 15 years.

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