Olympics postponement deals another blow to Japan's economy

Olympics postponement to 2021

Postponing the Olympics is a heavy blow that is almost certain to push Japan's persistently weak economy, the world's third-largest, into recession.

For Prime Minister Shinzo Abe, who has tried to revitalise growth through a mix of massive monetary easing, governance reforms and tourism, the coronavirus outbreak has unravelled what was supposed to have been a triumphant Olympic year.

Abe has already pledged "huge" stimulus to combat the coronavirus, which will involve at least $137 billion of spending, sources have told Reuters. Some of that will be financed by new borrowing, despite Japan's dire fiscal position.

"We're now facing a very severe situation," Hiroshi Ugai, chief economist at JPMorgan Securities Japan, told Reuters.

JP Morgan estimates that postponing the Games will knock 1.1 trillion yen ($10 billion), or 0.2%, off the economy this year.

While that might not seem like much, it comes as the coronavirus batters tourism and heaps pressure on small and medium-sized companies, raising the prospect of a spike in bankruptcies.

The pandemic also threatens to put the screws on consumption.

Then there is the hit to household, business and investor confidence -- which could be considerable for an ageing society that has long fought, often unsuccessfully, to escape the throes of deflation.

"It will also impact sentiment," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.

"So the effect will become even greater."