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Japanese Economy Update

The Olympic Games to be held in a super aged society

  Senior Research Fellow


Tokyo has been chosen to host the Olympics and Paralympic Games in the summer of 2020. It is going to be the first summer Olympics to be held in Tokyo  since it was last held in 1964.

The last Tokyo Olympics in 1964 took place when the Japanese economy was at its crossroad. What kind of a situation would it be like when the 2020 Olympics is held, and how should we make the most of this opportunity? These are the questions which will be picked up in this month’s column.

What kind of a year was 1964?

On one hand, the year 1964 was a memorable year that Japan, which had gradually accumulated economic power in the process of the rapid growth era that started in mid-1950s, was able to become a formal member of the advanced economies in the international society. In April she joined the OECD, a club of the advanced economies. She also accepted the Article VIII of the Articles of Agreement of the IMF in the same month. It led to the abolishment of, among other things, the foreign exchange budget system, which allocated foreign currencies to important needs. Overseas travel was also liberalized during the year. On the basis of these achievements, Japan hosted the Annual Meetings of the IMF and the World Bank Group in September, just before the Olympic Games.

On the other hand, the year 1964 is also remembered as the year when the Japanese economy reached a turning point. Japanese economy entered a recession immediately after the Olympics. The recession, which lasted from October 1964 to October 1965, is known as “the Showa 40 recession”, “the structural recession”, or “the transformation period.” During the recession, Yamaichi Securities and Sanyo Special Steel collapsed, and the Bank of Japan made the first special lending operation since the end of the last world war. In order to deal with the stagnant stock market, stock buying-up fund was established. And it was this year that government bonds were first issued, opening-up the long history of rising stock of government bonds (construction bonds has been issued constantly since FY1965, and deficit-financing bonds almost constantly since FY1975).

When the recovery started in late 1965, Japanese economy was able to start a second phase of the rapid growth era. Compared to the first phase whose main driving force was domestic-demand (it was known for “business investment encouraging more business investment”), the driving force in the second phase was foreign-demand. It is during this period that the Japanese economy started to see current account surplus and increase in foreign reserves. She was finally freed from the constraint that came from the shortage of foreign reserves (the so-called “balance-of-payments ceiling”).

As these developments suggests, 1964 was a year that Japan made some profound achievements as a result of the efforts that were made during the first phase of the high growth era. However, it also turned out to be the year when she first faced situations that later became serious problems.

What kind of a year is 2020 going to be?

By FY2020, the Government intends to overcome deflation, raise the real growth rate to two percent or more, and stabilize inflation rate at two percent. On the fiscal front, she aims to achieve primary surplus by FY2020, and bring down the public debt to GDP ratio gradually thereafter.

If the Japanese economy is able to achieve such goals, Olympic Games in 2020 can be held in a sense of accomplishment, and hopefully lead to a new stage for the Japanese economy.

However, achieving those goals is not that easy. Much of the measures of the growth strategy is still to be worked-on, and those which are more concrete is still waiting for legislation. As for the fiscal consolidation, the target to be achieved by FY2020 requires additional measures on top of the proposed hikes of the consumption tax rate to 10 percent. The discussion on the additional measures, however, has not even started. Meanwhile, the current account which has long recorded surplus may turn into deficit at around 2020 (See, for instance, JCER’s Medium-Term Forecast No.39). This may lead to changes in the conditions that allowed the long-term interest rates to stay low.

We are more likely to hold the Olympic Games in a more difficult situation. This is one of the big differences from the Tokyo Olympics in 1964.

2020 Olympics to be held in a super aged society

Another difference between the year 1964 and the year 2020 is undoubtedly the size of the population and its composition.

In 1964, total population was 97.2 million people. Of which, share of those who were 14 years old or under was 26.3 percent, those who were between 15 and 64 was 67.5 percent, and those who were 65 or over was 6.2 percent. If, for instance, the National Stadium which can seat 50 thousand people was to accept spectators in proportion to the age group, there would be 13.2 thousand peoples who are 14 or under, while those who are 65 or over would be 3.1 thousand people.

However, according to an estimate of the population in 2020, the total population would be 124.1 million people. The shares for each of the age groups will be; 11.7 percent for those who are 14 or under, 9.2 percent for those between 15 and 64, and 29.1 percent for those who are 65 or over. If the future stadium, which is going to be rebuilt so that it can seat 80 thousand people, accepts spectators in proportion to the age group, there will be only 9.4 thousand people who are 14 or younger while there will be 23.3 thousand people who are 65 or over. It means that, even though the capacity has expanded by more than one and a half times, the young generation will be about 30 percent less.

It is the first time that such a super aged society (defined as a society with the share of 65 or over in the total population being more than 21 percent), is holding the Olympic Games, the festival for the young people. Even in the United Kingdom, which hosted the previous Olympics, the share of the aged was 16.4 percent.

How can the Olympics be beneficial for the future generation?

Olympic Games are undeniably for all the people irrespective of their race, gender, and age. But how can we make use of the Olympics, which is going to be held in a super aged society, to benefit the future generation. Supporting talented athletes is one thing. But let us think of other ways to benefit those who are not so talented in sports.

First, we should invite more foreigners to Japan. We have been successful in globalization in the sense of going overseas as businessman and tourists, but there is tremendous room in globalizing in sense of accepting more people into Japan. Those who come to Japan may recognize the attractiveness of Japan, and may think of undertaking economic activity here.

Attractiveness lies not only in the cultural and social areas of Japan, but also in the economic area. Japan is gifted with special features that are seldom found in other countries. I summarize them as “PQRST” of the Japanese business conditions. It stands for Punctuality, Quality, Reliability, Safety, and Transparency. They provide comfortable grounds to do business for foreigners.

Second, we should provide more opportunities for the future generation to meet and exchange with foreigners. The opportunities should change their attitude, and help them become more outward-looking. It is often said that young people nowadays are inward-looking. It seems true that they have become reluctant to study or work abroad. However, going abroad is not the only way to be outward-looking. They can become outward-looking by exchanging with foreigners who come to Japan.

The opportunities for the young generation to exchange with foreigners and to know more about the foreign societies and cultures should be pursued in all sectors. They may be provided by accepting more interns in the local firms, more students to universities, and more volunteers to the communities. At the same time, it is necessary to make sure that the young generation is not clouded-out by the older generation. It may even be necessary, for instance, to reserve certain number of seats for the young generation, particularly in Olympics-related events.

Third, we should provide more education and training to the young generation so that they can absorb knowledge about the realities of the world, and know-hows on exchanging with foreigners. It applies to work-place and communities as well as schools. Olympics would provide attractive materials and incentives for the young generation to participate in these opportunities.

If we make efforts in this way, we should be able to enhance the young generation’s ability to absorb, communicate, and create. If these are achieved, the road to prosperity as a hub for global talents, funds, and technology may be opened-up for the Japanese economy, rather than struggling in the globalized world as an old economic power being isolated from the rest of the world. I hope that the opportunities that 2020 Tokyo Olympic Games provides us would be made most of for the benefit of the future generation.