Japan is now in the spotlight as host of the 2020, now 2021 Summer Olympics – officially the Games of the XXXII Olympiad. In this blog post, we’ll look at Japan’s position in the global economy and its management of the pandemic so far.

We also take a bet on Japan’s medal chances for this year’s Olympics. Frankly speaking, we are rather pessimistic about the country’s potential sporting success and the pandemic situation in the country.

What is Japan’s economic position among the G7 countries?

Japan is one of the world’s seven major economies, i.e., the G7 countries.

  • With a gross domestic product (GDP) of around 5.3 trillion U.S. dollars (purchasing power parity), the country is the third-largest economy in the world after China and the United States.
  • With almost 126 million people, Japan has the eleventh largest population in the world and is the second-largest G7 country.
  • The country is one of only three G7 countries with a current account surplus.
  • The high level of public debt is particularly striking. Public debt is currently equivalent to more than 250% of Japan’s GDP. This is the highest value of all developed economies.
graph economic indicators G7
Source: International Monetary Fund, World Economic Outlook Database, April 2021.

Source: International Monetary Fund, World Economic Outlook Database, April 2021.

One reason for the high level of public debt is the severe economic crisis in the early 1990s. At the beginning of the 1990s, both real estate prices and stock prices collapsed massively in Japan.

The bursting of these two speculative bubbles led to a crisis in the real economy – a development that is typical for economic crises.

Since then, the Japanese economy has grown only slightly. The government is propping up the economy with credit-financed stimulus packages, which is leading to high public debt.

The oldest society in the world

Japan’s population structure is another reason for the difficult public finances situation.

Japan’s population development has been characterized for decades by a low birth rate and increasing life expectancy. As a result, Japan currently has the oldest population in the world.

A key indicator for describing the age structure of a population is the so-called old-age dependency ratio. It indicates how many people aged 65 and older (people of retirement age) there are per 100 people aged 20 to 64 (people of working age) in a country.

Japan had by far the highest figure of all G7 countries in 2020, with 52 persons of retirement age per 100 persons of working age.

old-age dependency ratio
Source: United Nations Population Division, Department of Economic and Social Affairs: World Population Prospects 2019

Old-age dependency ratio (ratio of population aged 65+ per 100 population 20-64)

Source: United Nations Population Division, Department of Economic and Social Affairs: World Population Prospects 2019

As we have shown in previous studies, this aging has a negative impact on a country’s economic development: there is a decline in productivity and a dampening of real GDP per capita.

In an aging society, people have an incentive to build up savings for retirement. The result is relatively low consumer demand. There remain two main ways to compensate for a lack of demand: strengthening the demand for goods by the government and selling products abroad.

Japan: Globalization world champion in the “Globalization Report 2020”

The sale of goods and services abroad leads to the current account surplus already mentioned. It shows how important exports are for the Japanese economy, making it among the top winners from globalization.

In our globalization reports, we examine the extent to which individual countries have benefited from advancing globalization since 1990. The indicator for this is the level of globalization-induced increase in real GDP per capita.

In the last Globalization Report, Japan took first place among 45 countries: Between 1990 and 2018, real GDP per capita was on average around 1,790 euros higher each year than it would have been without advancing globalization.

average annual income gain per capita
average annual income gain per capita

Japan’s pandemic situation

When it comes to the Coronavirus crisis, Japan’s record so far has been mixed. On the one hand, its overall confirmed cases and death toll are the lowest among the G7 countries. But so are testing and vaccination rates.

Both are vital to sustainably combatting the virus. Japan does not even administer one test per 1,000 people a day. And while in all other G7 countries, well above 40 percent of the population have been fully vaccinated by now, this is true for only 23 percent of Japanese people.

This  – combined with the quick spread of the Delta Variant – is the reason why we should be worried about the pandemic impact of the Olympics not only on Japan but also globally.

In the U.K., which currently has the highest vaccination and testing rate among the G7, a big sports event like the European soccer championship drove up infection rates. There is a good chance that Japan might experience a similar outcome – despite the important difference that the International Olympics Committee made the wise choice not to allow for an audience.

However, even if we only consider only the athletes themselves, around 11,300 people from 206 nations are expected to enter the country from the outside world.

So the risk of faster transmission and spread of the virus is still substantial. The fact that in the run-up to the Olympics, daily cases have risen quickly in Japan, although from a rather low level, does not really make us optimistic: the rolling 7-day average stood at 28.7 on July 21, 2 days before the opening ceremony, up from 12 on July 1.


pandemic indicators

Source: Our world in data, https://ourworldindata.org/, download of data: July 22, 2021 

Our bet on Japan’s metal chances

While Japan’s pandemic outlook appears to be rather gloomy, maybe its sporting prospects can cheer us up? Can we draw any conclusions from the economic data about how Japan – and the other big six – will fare at the Summer Olympics?

Not seriously, but allow us an ultra-simplistic consideration: If per capita material wealth is high, society can finance measures to promote sports and athletes – that argues for lots of Olympic medals. An old society, on the other hand, will tend to be able to win fewer medals.

Based on these considerations, we perform the following calculation:

  • We take the GDP per capita from the table above as an indicator for the material per capita wealth. (positive influence on expected medal count.)
  • We divide this GDP per capita by the old-age dependency ratio (negative impact on the expected medal count.)
  • To make the final calculation result clearer, we divide the value found in this way by 100.

The result: According to these considerations, the United States has the highest value – 21.2 – and will win the most Olympic medals. Following is Canada (15.5), Germany (14.0), and the United Kingdom (13.1). Of the G7 countries, the fewest medals are expected for Japan (7.7), Italy (9.8), and France (11.7).

If we compare this to the actual performance at the past 5 Olympics, we can see that the United States indeed takes the top spot, and Japan is in fifth place. However, Canada performed a lot worse than in our analysis, while France did a lot better.

G7 olympic medals
G7 olympic medals

We’ll see how it plays out this time. Let the games begin and see how far off the truth we are. Until then, we stick to our pessimistic assessment regarding Japan’s medal and pandemic outcomes from the Olympics.