Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

Five AMs weigh in on Japan postponing the Olympics, Covid-19

Even without Covid-19, Japan’s 2019 Q4 economic output contracted by 7.1%, led by tax increases and slowing demand from China.

For Japan, the coronavirus outbreak could not have come at a worst time. 

With Tokyo due to hold the Olympics this year, there was widespread optimism that the event could kickstart consumer spending and tourism in the country. 

Even without Covid-19, Japan’s 2019 Q4 economic output contracted by 7.1%, led by tax increases and slowing demand from China. 

We asked five asset managers what the virus means for the Japanese economy and the impact of the Olympics postponement. 

For Japan, the coronavirus outbreak could not have come at a worst time. 

With Tokyo due to hold the Olympics this year, there was widespread optimism that the event could kickstart consumer spending and tourism in the country. 

Even without Covid-19, Japan’s 2019 Q4 economic output contracted by 7.1%, led by tax increases and slowing demand from China. 

We asked five asset managers what the virus means for the Japanese economy and the impact of the Olympics postponement. 

Anjeza Kadilli, Pictet Asset Management

Senior economist

Japan entered this external shock with a weak outlook. After the implementation of VAT increase from 8% to 10% on October 1, 2019 activity data registered a sharp drop.

The current external shock which is added to the former will push the economy in a recession, that we expect nevertheless to be short-lived.

The postponement of the Olympic Games to next summer is another downside risk to growth. Yet, we expect the impact on growth to be limited around 0.2% as the investment on infrastructure has already taken place.

What the economy will miss with the cancellation of the Olympic Games is a boost to consumption, tourism and services such as hotels. This would have been welcome in the current environment.

Tomo Kinoshita, Invesco

Global market strategist, Japan 

A new fiscal package, which Prime Minister Abe instructed his cabinet to start planning on March 28, is also likely to become a positive catalyst for Japan’s equity market.

Moreover, US dollar strength, which we have seen continuously over the past two weeks, should help Japanese companies in terms of export competitiveness and valuation of overseas assets in Japanese yen terms.

We believe that negative impacts of postponing 2020 Tokyo Olympic and Paralympic Games on the economy is quite limited. It would probably trim Japan’s GDP growth in 2020 by about 0.2pp as domestic and international travel activities drop and direct Olympic and Paralympic-related spending does not materialize in 2020.

Yoshinori Shigemi, JP Morgan Asset Management

Global market strategist 

Japan is expected to follow the US in introducing large scale stimulus packages, but the impact on the equity market may be limited.

This is because the Japanese economy has been dependent on external demand including foreign visitors, and domestic consumption is expected to be constrained due to stay-at-home order and lower future income expectation,

Compared with other markets, the Japanese stock market had already been cheap before the outbreak fallout, therefore it has not experienced a comparable plunge with the help of a stronger dollar weaker yen leaving it smaller room for recovery.

However, Japanese companies tend to have stronger balance sheet compared with peers in other equity markets. 

I don’t think the delay of Tokyo 2020 Olympic and Paralympic Games brings a considerable shock and downside to the market, since it has already been priced in.

Kozo Koide, Asset Management One

Chief economist

The package planned by Japanese government set against new Coronavirus is supposed to be more than 30 trillion yen in its size.

The package would be a temporal support for economic disruption. Whether it would be enough measure for the hardship of economy at this time depends on the medical development to cure the disease, as in the other area in the world.

The Olympic Game has not been cancelled but been postponed up to one year. It would be very painful for some businesses or households. However, there would be some remedy proposed by the government, particularly for touring and transportation industries combined by those for the new Coronavirus.

John Vail, Nikko Asset Management

Chief global strategist 

Japan’s next stimulus package will not be as large as other major countries, as it has already enacted several stimulus packages to offset the hike in the VAT and the natural disasters late last year.

Meanwhile, the Bank of Japan has also increased its support for the corporate bond market and equity market. 

The cost from the deferral of the Olympic will be less than 0.5% of GDP in 2020, which is quite tolerable, and the growth shifted into 2021.

If the delay helps prevent further spreading of the virus, it will help the global economy and thus, Japan’s economy.