Japanese Stock Investors Talk About The Benefits Of Closing The Olympics

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Β© Reuters. FILE PHOTO: The 2020 Tokyo Olympics logo, postponed to 2021 due to the coronavirus disease (COVID-19) outbreak, can be seen through signs at the Tokyo Metropolitan Government building in Tokyo, Japan on January 22, 2021 . REUTERS / Is

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From Hideyuki Sano

TOKYO (Reuters) – For any country, hosting the Olympics is an important issue both politically and economically. In a world ravaged by the COVID-19 pandemic, staging the Tokyo Games looks like a dangerous gamble on both counts.

Ominously, more and more investors in Japanese stocks believe that the cancellation of the games is better for the market, adding to pressure on Prime Minister Yoshihide Suga, who is already facing strong public opposition to the global showcase event.

The potential political damage to Suga and the resulting uncertainty of having the games hosted ahead of an election due to take place by October is making investors nervous, several fund managers and traders told Reuters.

Investors are also concerned about the added risk that the event could trigger another COVID-19 outbreak if the country struggles to contain a fourth wave of infections.

β€œMore and more people think that it is better for Japanese stocks not to hold than to do it and lead to political instability,” said Arihiro Nagata, general manager for global investments at Sumitomo Mitsui (NYSE πŸ™‚ Bank.

“And because we don’t have any incoming tourists, the economic benefits will be limited.”

Tokyo has already banned foreign visitors to the event, and many investors expect it to be able to take place without a spectator at all.

Suga, however, remains firmly convinced that the July 23rd Games, which have already been postponed from last year, must resume, despite 60-80% of voters wanting a cancellation or delay, recent polls by domestic media showed. Support for the prime minister has also fallen to its lowest level since he took office last September, down 32-43% according to the poll.

Compared to three months ago when domestic coronavirus-related strains were largely contained, more traders and fund managers told Reuters that they see the games as a risk to Japanese stocks.

(Graphic: Japanese approvals: https://fingfx.thomsonreuters.com/gfx/mkt/jznpnrrzqpl/210525A.png)

The Tokyo stock market has underperformed over the past few months. This has been hampered by the combination of slow vaccine introductions, a renewed outbreak of infection and growing concerns about the risks of holding the Olympics amid a once-in-a-century pandemic.

Foreign investors net sold more than 1 trillion yen ($ 9.20 billion) of Japanese stocks in the second week of May, the largest since March last year.

The benchmark closed at 28,554 on Tuesday, more than 7% below its 30-year high of 30,714.

Foreign investors are already starting to resent Suga’s fate, said Hiromichi Shirakawa, vice chairman and chief economist of Swiss credit (SIX πŸ™‚ in Japan.

“You are now in the process of assessing the political risk. You haven’t trimmed Japanese stocks all that much, but you think there is a good chance that Suga will quit.”

FRESH OUTBREAKAGE RISKS

Japan has avoided the large-scale infections that many other nations are suffering from, but the spread of variants has pushed new daily cases above 7,000, near the record high in January, prompting the government to extend the state of emergency to more parts of the country.

The U.S. Department of State and Australia have pushed against a trip to Japan over a new wave of COVID-19.

According to the International Olympic Committee, the 2016 Rio Games helped boost Brazil’s tourism revenue by 6.2% that year, and the UK economy posted a trade and investment dividend of 9 a year after the London 2012 Olympics, Reached Β£ 9 billion.

According to analysts, the economic cost of cancellation for Japan would be limited due to the reduced format of the games.

The maximum economic boost from the Olympics will be around 1.9 trillion yen, or 0.3% of Japan’s annual gross domestic product (GDP), said Takayuki Miyajima, senior economist at Sony (NYSE πŸ™‚ Financial Holdings, based on organizers’ acceptance.

That dwarf consumption of 3.7 trillion yen that the Japanese tourism sector lost last summer due to the pandemic, he said.

All of this would be controversial if the games introduced multiple COVID-19 flavors, and market participants say the presence of such a risk is enough to discourage investors from buying.

“If the government decides to cancel or postpone the Olympics, the government can take further action to contain infection and trigger a market rally. Perhaps the Nikkei could climb to around 32,000,” said Soichiro Monji, chief strategist at Nishimura Securities.

Sony Financial’s Miyajima agrees.

“Whether or not we hold the Olympics does not have a decisive impact on the economy. However, a longer period of infection is clearly negative for the economy.”

($ 1 = 108.73 yen)

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