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Victory! What Olympics win means for Japan

Ian Walton | Getty Images

After a bleak summer, the stars appear to be realigning for Japan after the nation won a highly-contested race to host the 2020 Summer Olympics and posted revised second-quarter growth figures that were stronger than initially estimated.

Euphoria following the Olympic-bid victory and the improving growth figures sent the Nikkei 225 up 2.5 percent and the U.S. dollar-yen pair 0.5 percent higher to 99.6 on Monday.

(Read more: Japan growth revised up sharply for second quarter)

"Japan winning the [bid to host the] 2020 summer Olympics is a massive boost to Japanese confidence. Business confidence will improve as industries see the effects of increased government and private spending over the next seven years, plus never discount 'national pride' and the effect it will have on consumer spending and household spending," Evan Lucas, market strategist at IG Markets wrote on Monday.

"For an economy that is desperate to snap out of 20 years of deflation this is a huge shot in the arm," he added.

Hosting the sporting event, which is held every four years, is a perfect means for bringing Prime Minister Shinzo Abe's "Japan Is Back" strategy to fruition, say analysts.

(Read more: Tokyo to host 2020 Summer Olympics)

"One of the most important things is globalizing Japan; we need to have foreigners in Tokyo, young people coming in to work. Having a big international party is exactly what we need, it's a perfect match to Abenomics and the government's plans," said Japan economist Martin Schulz of Fujitsu Research Institute.

According to Schulz, the economic benefits of preparing such for an event, which include ramping up infrastructure investment and improved business confidence, could be felt over the next 12 months. "Infrastructure plans are already in place. From my office, I just look across the bay to the space allocated for the main event halls, and they are waiting to start construction."

The Tokyo bid committee estimates hosting the event could generate economic activity worth $30 billion with the creation of over 150,000 jobs.

Marc Faber, author of the Gloom, Boom and Doom report, however, disagrees that the economy will get a sizable boost. "Do you think it makes any difference to an economy the size of Japan? There may some boost in terms of tourism during the Olympics, and there may be some construction boost, but relative to the size of the economy, it's completely irrelevant," he told CNBC.

(Read more: Stocks that may do well if Japan wins the 2020 Olympic bid)

Nevertheless, Japanese equity strategists cheered the country's win, with Nomura saying Tokyo's selection as the Olympics venue removes the "value trap" in the market perceived by some investors.

"Most stock market participants identify a shortage of catalysts for the time being, and Japanese stocks could be viewed as having fallen into a value trap, but we expect Tokyo's success in bidding for the Olympics to become a very positive catalyst," Nomura strategists wrote in a report on Monday.

The bank expects the sporting event to help earnings at companies involved in areas including infrastructure, media, consumption and security.

(Read more: Here's what may trigger more BOJ stimulus)

Wining the bid to host the Summer Olympics has historically proven positive for a country's equity market. According to Nomura, national stock markets appreciated in six out of the last seven cases of venue selection, gaining on average 15.9 percent within 200 business days of the announcement.

The Japanese brokerage says such a catalyst increases the probability of reaching their year-end Nikkei target of 18,000, which is 27 percent above current levels.

—By CNBC's Ansuya Harjani; Follow her on Twitter @Ansuya_H

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