Road to Tokyo 2020: Japan Faces Challenge of Averting Recession after Games

July 28, 2019

Tokyo- Massive public spending related to the 2020 Tokyo Olympic and Paralympic Games may inevitably be followed by an economic slowdown, leaving the Japanese government to face the challenge of averting a serious downturn.

After the previous Tokyo Games in 1964, the Japanese economy plunged into a serious slump, after the end of huge infrastructure investments, and the number of corporate bankruptcies tripled.

The government is expected to look at economic stimulus measures during its work to compile the budget for fiscal 2020, which starts in April, and maneuvering to secure appropriations has already started.

Expenditures related to the 1964 Games, including private-sector funds, totaled 987.3 billion yen, equivalent to about 30 pct of the government's general-account budget for fiscal 1964.

Much of the spending went to infrastructure development, including the construction of the Tokaido Shinkansen Line linking Tokyo and Osaka, western Japan, and the Metropolitan Expressway in the Tokyo area.

Such transportation infrastructure is a vital Olympic legacy and has to date played key roles as underpinnings for Japan's economic growth and society.

But in 1965, the economy fell into a recession due in part to the disappearance of Olympic-linked special demand. The number of corporate bankruptcies surged from 1,738 in 1963 to 6,141 in 1965, while the economic growth rate skidded from 10.4 pct in fiscal 1963 to 6.2 pct in fiscal 1965.

To finance economy-boosting measures, the government issued deficit-covering bonds for the first time in the post-World War II era, paving the way for the government's long reliance on debt.

Spending of about 3 trillion yen is planned for the 2020 Games, raising concerns about falling off an "economic cliff" after the quadrennial event.

The government's economic and fiscal policy guidelines drawn up in late June called for public spending to make sure that economic growth will not be disrupted after the Olympics, following strong requests from some lawmakers of the ruling Liberal Democratic Party.

The Finance Ministry, however, is determined to prevent easy increases in fiscal spending. "We need to scrutinize strictly the need for each project," a senior ministry official said. Jiji Press