Delay Deals New Blow To Japan's Economy (DJ)
Last Modified: 02:32 AM, Wed Mar 25, 2020
25 March 2020

Economy expected to be hurt by loss of tourism, other effects of global pandemic

By Alastair Gale and Peter Landers

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 25, 2020).

TOKYO -- The delay of the Tokyo Olympics to 2021 deals a fresh blow to the weakening Japanese economy but should ensure Shinzo Abe wins a farewell moment in the international spotlight as prime minister.

The question of whether the Olympics would have to be postponed because of the coronavirus pandemic -- after seven years of preparations for a July 24, 2020, start -- has dominated news headlines in Japan for days as other major international events have been scrapped or shelved. Now that Mr. Abe has taken the initiative and secured a one-year delay, Japan faces the fallout.

Hotels, theme-park operators, restaurants and travel companies are among businesses that had been banking on hundreds of thousands of foreign and Japanese tourists to travel to the Games this summer. As they reel from the collapse of international travel during the coronavirus pandemic, the postponement of the Olympics further darkens their outlook.

"With the Games being postponed, you can say goodbye to 55-65% of tourism in 2020. This is going to be a huge hit to private consumption," said Nicolas Sopel, an analyst at Fitch Solutions, a risk-analysis company.

Japan's economy was already contracting before the coronavirus outbreak, hit by the impact of a sales-tax increase and weakening exports. The coronavirus outbreak has added to the misery. In response to the delay of the Olympics, Fitch said it expected the economy to contract 1.6% in 2020, worse than its prior forecast for 1.1%.

Nomura Securities had estimated the Olympics would help bring in around $2 billion in tourism revenue for Japan in 2020. Theme parks had hoped to take advantage of the wave of visitors, such as Universal Studios Japan in Osaka, which plans to open a Nintendo-themed area of its park in the summer.

Japan's largest theme park, Tokyo Disney Resort, also has a $700 million extension planned before the Olympics, including a new "Beauty and the Beast"-themed ride.

Other economists said the impact of the coronavirus was more significant than any effect from the postponement of the Games. "With only four months until the Games, construction investment has already peaked, and most projects have probably been completed," economists at UBS wrote in a note. "The sharp falloff in foreign visitors to Japan due to Covid-19 will overshadow any impact" from changes to the Olympic schedule, they said.

Costs directly related to the Olympics will nonetheless pile up for Japan because of the delay. Tokyo organizing committee Chief Executive Officer Toshiro Muto said it was hard to say how much they would be or who would bear them, but they would include the burden of changing bookings for privately owned arenas and other facilities for the new date for the Games.

"We may have to book facilities for a whole year to ensure we can use them," he said at a press conference.

Many of the facilities for the Olympics have already begun taking bookings for next year. Tokyo International Forum, which will host weightlifting, said it had bookings for this fall and some for next summer. The Tokyo Big Sight conference center, scheduled to be the main media center for the Olympics, said it has also started to take applications for bookings for next summer.

Under one estimate, costs related to a one-year delay of the Olympics would be around Yen640 billion, or $5.8 billion. The forecast, from Katsuhiro Miyamoto, an emeritus professor at Kansai University in Osaka, includes maintenance costs for stadiums, new qualification events for Japanese athletes and advertising costs for the rescheduled Games.

A real-estate challenge also awaits. Apartment blocks have been built near downtown Tokyo to serve as the athletes' village during the Games. They are scheduled to be sold off after the Games as condominiums, and contracts have already been finalized for around one-fourth of the complex, but buyers may now have to wait to take occupancy.

Mitsui Fudosan Co., a real-estate company that is among the companies leading the project, said there was no change to contracts already signed but it was suspending new sales for now.

Opinion polls show most Japanese support the decision to delay the Games, due to concerns about public health risks as the coronavirus pandemic spreads around the world. One concern is that an influx of tourists to the Olympics will trigger new outbreaks of the virus in Japan.

Compared with the U.S. and many European countries, Japan has experienced relatively few coronavirus cases -- about 1,200 as of late Tuesday -- with 42 deaths. Most offices and stores remain open, and trains are running as usual. Schools are set to reopen in early April after closing in March.

Despite the relative normalcy of life in Japan, the country is feeling the same economic shocks as other nations. Japanese business managers' sentiment in March suffered the fastest decline since a devastating earthquake and tsunami in 2011. Department-store sales are likely to fall about 40% this month over year-earlier levels, according to industry officials.

By gaining agreement to hold the Olympics by the summer of 2021, Prime Minister Abe ensures a personal payoff. His term as leader of the ruling Liberal Democratic Party expires in September 2021. The holder of that post is usually prime minister by virtue of the party's control of Parliament.

Mr. Abe has said he doesn't plan to run for re-election as party chief, so, barring unforeseen changes, a Summer Games in 2021 would serve as his swan song. He is already the longest-serving prime minister in Japanese history.

--River Davis and Chieko Tsuneoka contributed to this article.

Write to Alastair Gale at alastair.gale@wsj.com and Peter Landers at peter.landers@wsj.com

(END) Dow Jones Newswires

March 25, 2020 02:32 ET (06:32 GMT)

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