Olympics may bring more risks than economic benefits for Japan

For organizers and athletes, holding the Tokyo Olympics and Paralympics with or without domestic spectators may make a huge difference.

However, staging the major sporting event amid the coronavirus pandemic with spectators reduced to a maximum of 10,000 per venue or 50% of capacity — whichever is smaller — may not, by itself, make much of a difference when it comes to the economy. But some economists have raised a red flag that the economy could receive a heavy blow, rather than a boon, from the postponed Olympics depending on whether Japan can keep the spread of the virus in check.

Takahide Kiuchi, executive economist at Nomura Research Institute, estimates that the economic benefits of the Tokyo Games will be ¥1.72 trillion ($16 billion) if spectators are allowed at each venue in accordance with the attendance limits.

The figure is ¥89.4 billion smaller, or down 4.9%, from the estimated ¥1.81 trillion economic windfall for an Olympics held with no attendance limits on domestic spectators. The games’ organizers have already barred overseas spectators.

Prime Minister Yoshihide Suga is pinning hopes of success on the positive effects of what will be the second Summer Olympics that Tokyo has hosted, following the first in 1964.

But Suga has not ruled out the possibility of switching to a no-spectator games for the sake of safety and security if he decides to declare another COVID-19 state of emergency.

Under that scenario, the economic benefits would decrease to ¥1.66 trillion, or 91.9% of the windfall from a games held without limits on domestic spectators, according to Kiuchi, who views such a loss as “not large.”

Japan has already reaped economic benefits in the lead-up to hosting the games, building necessary infrastructure such as competition venues and accommodation facilities for athletes and other people involved.

After three state-of-emergency declarations going back to last year, Japan’s economy faces the risk of another quarter of negative growth in the April-June period.

The Daiwa Institute of Research puts economic gains during the games at ¥520 billion. Of the total, ¥70 billion would come from spending by Olympic and Paralympic participants and spectators, and ¥150 billion by households.

A quasi-emergency is in place in a total of 10 prefectures, including in Tokyo, where 24 Olympic competition venues are located.

In the capital, people are now allowed to drink alcohol alone or in pairs for up to 90 minutes between 11 a.m. and 7 p.m. at restaurants and bars. But coronavirus cases have already shown signs of a rebound since the stricter state of emergency ended on June 20 after about two months.

The quasi-emergency declaration is set to end on July 11 under the current plan, ahead of the opening ceremony of the Olympics on July 23.

Toru Suehiro, a senior economist at Daiwa Securities Co., said tighter curbs, such as limiting the movement of people, may remain due to the Olympics and Paralympics.

“We can expect a negative impact of ¥300 billion to ¥400 billion on consumption in the July-September quarter, when compared with the scenario in which no Olympics is held,” Suehiro said.

Dining establishments serving alcohol are unlikely to enjoy the same benefits as those brought by the Olympics under normal times. The same is true for corporate sponsors.

Alcohol — a must-have item for some spectators — will be banned at venues this time. Alcoholic beverages will not be sold or allowed to be brought in, according to organizers.

That is a setback for sponsor Asahi Breweries Ltd., but it backed the organizers’ decision to ban the sale of alcoholic drinks, saying it was a “natural” outcome amid the pandemic.

The brewer had initially planned to provide its Super Dry beer at venues and related facilities.

As the impact of the pandemic lingers, Japanese beer-makers have been seeking to boost sales to people who want to drink at home.

Asahi, for its part, has launched a subscription service for beer taps as well as a smash-hit canned Super Dry that, like a draft beer, creates a foam head when the top of the can is removed.

Demand from Olympic and Paralympic fans and television spectators may, to some extent, help ease the pain felt by companies in the alcohol industry.

“The Olympics is certainly an opportunity to market beer and other alcoholic drinks but much depends on (the spread of) the coronavirus,” a company official in the beer industry said.

“First off, the amount of alcohol people drink at home is markedly different from when people drink in a group outside,” said the official, who declined to be named.

Any rebound in COVID-19 cases during or after the Olympics would be a negative factor for the economy, despite predictions from economists that pent-up demand will emerge again once people are vaccinated.

“If Mr. Suga wants to hold a ‘safe and secure’ Olympics, no spectators must be the best option,” Daiwa Securities’ Suehiro said, noting that a further spread of the virus due to the games will hurt the economy.

Suga also faces political risk with a Lower House election that must be held by this fall.

“It’s true that there are various options, including whether or not to hold the games and whether or not to allow spectators in. But without canceling the games, we want to make them safe and secure for spectators and everyone,” said Hidemasa Nakamura, the organizing committee’s games delivery officer.

“I myself need to take responsibility if there is a big increase in infections,” he last week on a TV program.