What Happened

After much deliberation, Prime Minister Shinzo Abe on March 24 announced the delay of the 2020 Tokyo Summer Olympic Games in light of the open-ended COVID-19 pandemic. The games are still set to be held no later than summer 2021. 

Why It Matters

Japan's decision to postpone the Tokyo Summer Olympics will further damage an economy already reeling from COVID-19, increasing the likelihood of massive stimulus spending and consumption tax relief. Globally, the cancellation of the games will serve as a bellwether for countries and institutions still on the fence as to whether they should proceed with planned summer events, likely spurring a wave of cancellations and delays in conferences, gatherings and celebrations not already off the books. 

Japan has tried to walk a middle line in terms of domestic restrictions related to COVID-19. Abe had long maintained a stance of opposing delays to the Olympics, but eased back from this in recent days following the pullout of key international teams and mounting political pressure. So far, the country has avoided the surge in cases seen elsewhere in spite of less rigorous limitations and less expansive testing. It remains to be seen whether this trend will hold, and Abe does hold the legal ability to declare a nationwide state of emergency. Last week, a government-convened expert panel gave the green light for the reopening of schools in April if the government decides to do so and for the easing of some restrictions on areas where COVID-19 has not been widespread. On March 24, however, Tokyo Gov. Yuriko Koike warned that the capital city may eventually need to go on lockdown if cases surge.

Regardless of the domestic situation, with COVID-19 sweeping the globe, Japan is already facing the prospect of recession in 2020. The pre-virus period saw Japan's economy weakened by a global trade slowdown, a major typhoon and a consumption tax hike. On March 9, the government revised its fourth-quarter 2019 GDP data to a 7.1 percent contraction in growth. In 2020, a survey of economists by Japan Center for Economic Research projects a contraction of 2.9 percent overall. The delay of the Olympic Games will further damage growth. While this will be partly offset by the fact that infrastructure spending has already occurred, a further blow to domestic spending is unwelcome, to say the least. 

Given the risks to economic stability of massive stimulus, especially in light of a December 2019 $230-billion aid package meant to offset headwinds predating the virus outbreak, the government has hesitated to unleash additional spending to prop up growth. Now, however, it is planning an intervention on par with its stimulus during the 2008 recession. On March 24, Abe said that the ruling Liberal Democratic Party was considering an additional $139 billion package, and would put together its proposal March 30. Leaks indicate that in fact up to $270 billion is under consideration, with some funds allocated for direct cash handouts to citizens. Opposition parties are clamoring for steeper measures, including the suspension of an October 2019 consumption tax hike that has dampened domestic growth. The delay in the Olympic Games and the spread of the COVID-19 pandemic in key markets overseas increases the likelihood that government spending will be on the higher end of estimates, and that a consumption tax suspension or cut may be in the works.