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More Good News for Japan’s Economy

More Good News for Japan’s Economy

130 years ago, a bunch of jobless Samurai came together to create “Onoda Cement”, one of the oldest and biggest cement manufacturing companies of Japan. The Samurai had put their entire pension into creating this company.

London, England, July 04, 2016 — Since its inception, Onoda Cement has witnessed its share of ups and downs. The company stood strong as Japan dabbled with industrialisation, a destructive war, and a post-war booming economy.

However, in 1990, when the demand for domestic cement declined, the successor company of Onoda, “Taiheiyo Cement”, began to register a series of constant contractions.

On Saturday when it was announced that Tokyo will host the next Summer Games in 2020, Taiheiyo Cement finally began to see some light at the end of the tunnel.

Other than Taiheiyo, this news has also affected other property developers, construction companies, and contractors in a positive way. The stock prices of many such companies surged after it was announced that Japan will be hosting the summer games in 2020. Investors are hoping that the imminent games will induce a phase of construction boom in Japan.

The news also affected the Nikki index which went up by 2.5% and reached 14,205.23. This is the highest the Nikki index has been in the last month.

Richard Sharpe, the Co-Head of Global Mergers & Acquisitions at Acom Tokyo Securities says, “Tokyo’s victory at Olympic bidding is capable of changing the shape of Japanese stock prices.”

Yet another factor that led to the growth of Japanese stock prices is the strong performance of the Japanese economy in the second quarter. Given the increase in capital investment, the economy registered a growth of 2.6%, which will lead to an annualised growth rate of 3.8%.

According to analysts, the Olympics will boost the Japanese economy in a significant way. They will enhance the economy by 3 trillion Yen over a period of next seven years.

However, according to Sharpe,” Analysts are underestimating the immense opportunity that the country has come across. The economy will increase anywhere between 6 trillion to 8 trillion and the gross domestic product will go up by almost 0.8%.”

It is quite apparent that the Japanese construction industry will benefit the most by this development. Though Tokyo is planning to reduce costs by putting to use 15 of its legacy buildings, it will still have to build 22 more buildings to pull off the games. On an average, this will cost around $3.1 billion.

To start with, the new Olympic stadium which is called the “Cycling Helmet” will be built at an approximate price of $1.3 billion. This stadium will have the potential to accommodate 80,000 people. Likewise, the propositioned Olympic Village, which has been designed with an intention to accommodate 17,000 athletes and trainers, will cost $955 million.

According to Mr Sharpe, this is the biggest housing development project Tokyo has seen in decades. Harping on Tokyo’s success at Olympic bidding, investors are looking to benefit by investing in Olympic-related shares. On Monday, Japanese travel and advertising agencies showed significant growth. Likewise, Japanese sport equipment’s manufacturers also saw an increase in their stock prices.

If analysts are to be believed, to accomplish the infrastructure project for the 2020 summer games, Tokyo will require about three millions tonnes of cement up to 2019. The cement demand can surge further as developers begin to build hotels and other commercial properties before the Olympics.

Taiheiyo, which saw a decline after the Tsunami and Japan’s nuclear disaster, is already being approached by construction moguls. Taiheiyo’s net profit went up by 44%. The company expects a further increase of 14.7% this year.

Will the Olympics make a long-term impact?
According to Mr Sharpe, “Potential investors are showing increasing interest in the Japanese economy and are willing to invest in it. This will, most certainly, affect the stock market in a positive way. If the past is any indication, this positive affect will stay even after the Olympics are over.”

Haruki Kasumi
Acom Tokyo Securities Ltd
Tokyo, Japan

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