Tokyo Olympics costs jump amid labor shortage

The Olympic Cauldron is tested by fire crews at the Sochi 2014 Winter Olympic Park in the Costal Cluster on January 27, 2014 in Sochi, Russia.
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The Olympic Cauldron is tested by fire crews at the Sochi 2014 Winter Olympic Park in the Costal Cluster on January 27, 2014 in Sochi, Russia.

Abenomics, Shinzo Abe's quest to bring growth and inflation back to Japan, has thrown a spanner in the works of Tokyo's preparations to host the 2020 Olympic Games as a chronic labor shortage in the construction industry and inflated materials prices threaten the country's promised compact games.

Last year the Japanese capital fought off competition from Madrid and Istanbul by promising a compact games, with all events to be staged within an 8 kilometer radius of the athletes' village in the Harumi district of Tokyo's Chuo ward. But last week Yoichi Masuzoe, Tokyo governor, began to scout other potential sites further out to save cash.

Plans to build a new marina on reclaimed land in Wakasu, not far from Harumi, for example, may be scrapped in favour of using existing facilities across the bay in Chiba prefecture, Mr Masuzoe's office confirmed on Tuesday.

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Japan's recovery under Mr Abe, prime minister since December 2012, has caused tightness across the labor market: data released on Tuesday showed that there were 1.1 jobs per applicant in June, the highest ratio since the early 1990s.

But shortages are acute in the construction sector, where the task of upgrading ageing public infrastructure – part of Mr Abe's three-pronged stimulus plan – has fallen on a labor force already strained by the rebuilding of tsunami-afflicted areas in northeast Japan.

At the same time, costs for steel beams and other materials have risen as a result of the drop in the yen's value since Mr Abe took office. Even with the pared-down plans for the 2020 games, the metropolitan government's Y153.9 billion ($1.5 billion) budget is likely to climb much higher, said Yoji Otani, an analyst at Deutsche Bank, as contractors turn up their noses at the low rates on offer.

Demolition work ahead of the Y163bn rebuilding of the Tokyo National Stadium in the city centre – due to host the opening and closing ceremony – has already been pushed back twice, with the latest round of bids in mid-July failing to reach the price offered, according to Japan Sport Council, which owns the venue.

Edward Suzuki, a Tokyo-based architect, says that the "monstrous" overhaul of the stadium built for the 1964 games should be revised, as many of its features – including seating for 80,000 spectators and a retractable roof – go beyond the requirements of the International Olympic Committee.

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He noted that Zaha Hadid, the project's British-Iraqi architect, significantly overspent on a shopping mall project completed earlier this year in Seoul.

Others fear that the 2020 Games will lumber Japan with more white elephants to weigh on the public purse. The bobsleigh run built in Nagano for the 1998 Winter Games, for example, cost Y199 million to maintain in the 2012 fiscal year, while attracting private sector revenues of less than Y14 million, according to Nagano city.