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Japan's economic policymakers now factoring in Olympics cancellation, sources say

10 Comments
By Leika Kihara

Even as Japan has stressed that the Olympics will proceed as planned, government and central bank officials are more seriously weighing the risk of cancellation when making projections for this year's economic outlook, sources said.

The Bank of Japan is expected to loosen monetary policy next week to ease the hit to business sentiment from the coronavirus outbreak and the subsequent market volatility.

Such a move would still be based on an assumption that the economy will make a quick V-shaped recovery, fueled in part by a boost in demand from the Olympics in July.

However, policymakers assessing the scale of the damage fear an Olympic cancellation will upend even their most pessimistic scenario on the prospects of such a recovery, according to multiple sources.

"You need to be prepared for the chance of a cancellation and the loss that could cause," said an official with direct knowledge of the government's deliberation on the matter.

"The government's economic package, to be compiled in April, will probably take into account this risk," the official said.

Prime Minister Shinzo Abe's government has repeatedly stressed that the Tokyo Olympic Games will go ahead as planned. However, there are growing doubts as the coronavirus outbreak worsens around the globe, prompting quarantines, travel restrictions and cancellations of sporting events.

On Thursday U.S. President Donald Trump floated the possibility of a one-year postponement for the Games, although he later praised Japan's "magnificent" venue.

The damage to the economy from a cancellation would be huge, marking a severe blow to household and corporate sentiment, already souring from event cancellations, slumping tourism and travel curbs, the sources say.

"In times like now, keeping public sentiment from cooling too much is extremely important," another official said on condition of anonymity as he was not authorized to speak publicly.

"If the Olympics is cancelled, consumption could freeze."

Some analysts had believed the world's third-largest economy was already in danger of tipping into recession before the virus outbreak worsened.

CRUNCH TIME

Some ruling party lawmakers and government officials see the need to prepare for the risk of a cancellation.

The crunch time for policymakers is around end-April, when the BOJ meets for another rate review and issues fresh quarterly economic projections. Their hope is that by then, the epidemic will have subsided and Tokyo can host the Games as planned.

If not, the rosy projections of Japanese policymakers - that the economy will rebound in the latter half of this year and sustain a moderate recovery - could unravel, the officials say.

"It will be a huge problem if little progress is made in containing the virus by end of next month," a third official said. "If the Olympics is cancelled, the economy could crumble."

With the market rout already denting morale, the BOJ is expected to downgrade its assessment of the economy next week from the current view that it is "expanding moderately as a trend," sources familiar with its thinking say.

Government and BOJ economists have yet to firm up estimates on how much an Olympics cancellation could cost the economy. But some say private forecasts of around 7 trillion yen ($66 billion) - or 1.4% of gross domestic product - may be too optimistic.

Even a postponement of the Olympics would be damaging. The economy shrank in October-December due to the hit from last year's sales tax hike, and it could contract again in the current quarter as the virus curbs global trade and tourism.

"If conditions (regarding the epidemic) are bad enough to cancel the Olympics, that in itself is a huge problem for the economy," said a fourth official. "It will be a completely new shock to the economy."

© Thomson Reuters 2020.

©2020 GPlusMedia Inc.

10 Comments
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How weak and ineffectual has the economy become at supporting the population when all the economic stimulus we can look forward to Is a sporting event!

There is already a need for a state of emergency in order to oust the geriatric incompetents that are sinking the country...

3 ( +5 / -2 )

Reality is starting to bite...

0 ( +0 / -0 )

Of course they should.

2 ( +2 / -0 )

Doing all they can to prevent the Olympics being cancelled and preparing in case it is is sound policy.

1 ( +1 / -0 )

Return to 5% consumption tax, please.

And no tax on medical care!

4 ( +4 / -0 )

I would love to see the salary scales of the bureaucrats that reach age sixty and the usual 50% drop for us common folk be put on them as well. Then I might have sympathy for them.

The country is aging. How can they expect people to buy things they do not need?

3 ( +3 / -0 )

Why would cancelling (or most likely postponing) this sporting event freeze consumption?Are people suddenly going to stop eating or something just because the olympics are not on? I think the average Japanese is sensible enough to understand reality, unlike their elites.

1 ( +1 / -0 )

Why would cancelling (or most likely postponing) this sporting event freeze consumption?Are people suddenly going to stop eating or something just because the olympics are not on?

It starts at investment. Investors don't like to invest at times of uncertainty. Investment is what gets large amounts of money flowing, as investors put their money into new projects, or even existing projects. This investment turns into money for companies, when then use it to further their business - buying items and/or hiring employees. This gives businesses more confidence, which in turn gives employees more confidence. When both have confidence, they spend, and the economy rolls along.

When investors don't invest, less companies have money coming in, and they in turn are less likely to spend and/or hire. This goes for the employees as well. People worried about their jobs don't travel, don't buy, and save their money. This lack of spending is what slows the economy.

0 ( +0 / -0 )

What money do the 60% of part time workers have to invest in stocks?

They can’t make ends meet!

-1 ( +0 / -1 )

What money do the 60% of part time workers have to invest in stocks?

Where did you get the idea that the investors are made up of part-time workers?

0 ( +0 / -0 )

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