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Thursday, September 12, 2013 3:15 AM

Japan "Wins" 2020 Olympics: Final Nail in Yen Coffin?

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Japan is all aglow that it "won" the 2020 summer Olympics.

“When I heard the name Tokyo, I was so touched, overwhelmed,” said Shinzo Abe, Japan’s prime minister. “The joy was even greater than when I won my own election.”

“Japan has seemed to be overshadowed by the rise of China and other developing nations,” said Harumi Arima, an independent political analyst. “These Olympics will give Japanese a chance to feel reborn, to feel for themselves that Japan can still be vibrant.”
Touching Indeed

Let's assume Japan clears its nuclear waste dump in time. Then let's assume the same rate of "success" in these Olympics as other nations experienced in past Olympics.

Success Rate

Fidelity discusses the Olympics success rate in Do investors in the Olympics ever win?
With the upcoming 2014 Winter Olympics in Sochi, Russia and 2016 Summer Olympics in Brazil (as well as 2014 World Cup), now may be the right time to consider the implications of the world's biggest global sporting events for investors. To prepare for these events, Brazil and Russia are spending billions to modernize infrastructure, build stadiums, increase commerce, and promote tourism. To the casual observer, such activity might seem fit for economic expansion and strong investment performance.

However, history suggests the opposite: Mega-sporting events usually leave the host nation with budget overruns and massive debt, and event-driven investment strategies have rarely succeeded.

Case in point: An analysis of the Sydney Olympics’ impact on GDP illustrates the gap between hype and reality, evidenced by the considerable gulf between pre-Olympics estimates of economic benefits compared with post-Olympic studies (see the chart right).

Present day: Preparations troubled in Brazil and Russia

According to a recent study by the University of São Paulo, Brazil will spend roughly $18 billion on infrastructure ahead of the 2014 World Cup, $14 billion of which will come directly out of Brazilian taxpayers’ pockets. Expected outlays devoted to the 2016 Olympics are likely to be an additional $15 billion, for a combined total of $33 billion.8 If the Brazil Olympics do go over budget, it would be the second-most expensive Games ever.

Protests in Brazil

Scores of Brazilians have taken to the streets to protest these high costs. The initial demonstrations were in response to a proposed rate increase for bus and metro fares, but the dissent quickly spread to include excessive spending on stadiums, corruption, and poor public services. Matheus Bizarria, an NGO Action Aid worker, said Brazilians have reached the limit of their tolerance. “It’s totally connected to the mega-events,” Bizarria said. “People have had enough.”
Cost of Hosting

Brazil is on a pace to hit the second highest amount spent to host an Olympic event ever. The expected payback is negative.

Infrastructure Costs

The Keynesian-clown fools in Japan cheer (now) but watch what happens as taxes rise to support ever-growing infrastructure costs on top of ever-growing nuclear cleanup costs.

Better yet, watch what happens when taxes don't rise to support ever-growing infrastructure costs on top of ever-growing nuclear cleanup costs.

Either way, Japan loses.

Japan does not need, and cannot afford to waste more money on infrastructure. Yet, it will have to raise taxes to meet this foolish expense or the Yen will take a hit.

This brings us back to prime minister Abe's statement: "When I heard the name Tokyo, I was so touched, overwhelmed. The joy was even greater than when I won my own election."

Rest assured this "joy" will not last long.

Final Nail in Yen Coffin?

Inquiring minds may be asking: Is this the final nail in the yen coffin?

Probably not. History suggests Abe has a gun loaded with coffin nails and he intends to use them all (until he is voted out of office - and at that time it will be far too late to save the yen). Time will tell.

Mike "Mish" Shedlock

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