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The 1964 Olympics transformed Tokyo into a vibrant, modern city, setting off an incredible era of postwar economic growth. Half a century later, Japan is plotting another Olympian makeover of the metropolis — this time to symbolise its revival after 20 years of stagnation.

As part of the reconstruction, beloved landmarks of Japanese architecture — most notably the Hotel Okura building — are being demolished to make way for a new city design that Japan hopes will reboot its capital as a booming financial centre and as an attraction for foreign investors and tourists.

A big challenge awaits Tokyo as the city pieces together — on a tight budget— a hotchpotch of ambitious ideas that are closely tied to the success of Prime Minister Shinzo Abe’s economic programme to lift Japan’s growth potential.

“Global institutional investors are looking at Japan in terms of Abenomics [the policies advanced by the Mr Abe aimed at boosting the economy],” says Andy Hurfurt, executive director at property adviser CBRE in Tokyo. “The 2020 Olympics is just an additional factor.”

Enthusiasts see the future Tokyo as a greener city with streets filled with fuel cell vehicles, its electricity provided by hydrogen and solar energy.

Yoichi Masuzoe, Tokyo’s governor who studied in Paris, fancies a city that resembles the Champs-Elysées, with wide walkways, stylish cafés, and full of cyclists. And companies from Panasonic to small start-ups are striving to be at innovation’s cutting edge, developing translation gadgets, drones and robot guides.

Nonetheless, the outlook for the Japanese capital is not rosy. Its population — now at 13.4m — is expected to peak in 2020 and start declining, in line with the rest of Japan. A prolonged period of economic malaise has seen Tokyo fall to sixth place behind Hong Kong and Singapore in the Global Financial Centres index published by Z/Yen, a London-based consultancy.

Just as the London Olympics in 2012 are regarded as a success, Mr Masuzoe emphasises that the event can be used to demonstrate that developed cities facing an ageing population can still thrive.

“We want to create a mature city that is affluent,” he says. “It’s hard to enjoy a comfortable life if the population is too big.”

Mr Masuzoe says many of the projects in place will help to alleviate the “negative legacy” from the pursuit of rapid economic growth in the postwar period that led to environmental destruction and heavy traffic jams.

As a step to ease congestion, Tokyo last year opened a new 1.4km road costing $2.2bn that connects two of the city’s business districts, Shimbashi and Toranomon. By 2020, the road will be extended to link the new Olympic stadium in central Tokyo with the waterfront district, where the Olympic Village will be built.

Big development projects are also under way to convert Toranomon, an area close to many central government buildings, into a global financial centre to attract foreign investors. Special economic zones will be established in which regulations will be eased to make it easier for foreign companies to open offices in the city.

“In order to carry out these ambitious projects, we need money. That’s why Tokyo needs to be revived as a financial centre to attract wealth from around the world,” Mr Masuzoe says.

To help foreigners get by, Panasonic, NTT and other Japanese tech groups are developing translation tools that will allow locals to communicate with foreigners using smartphones, tablets and wearable devices. The government also aims to double the number of tourists to Japan to 20m by 2020.

Already, Mr Abe’s promise of lower corporate taxes and the Bank of Japan’s massive monetary easing programme are attracting foreign capital. According to CBRE, the total value of property transactions by overseas investors in 2014 doubled from a year earlier to more than Y1tn ($8.3bn).

Analysts say, however, that Japan, which has public debt now approaching two and half times the size of the economy, will need a bigger flow of private investment to engineer Tokyo’s successful revival.

“The government needs to outline a clear vision of the future that will make the private sector confident enough to take part in aggressive investment plans,” said Fumihiko Suzuki, senior consultant at Daiwa Institute of Research.

Last year, Tokyo faced criticism when the metropolitan government’s budget for the 2020 games nearly tripled to Y458.4bn from its initial estimate because of rising material and labour costs. It later trimmed the budget to Y257.6bn by promising to use existing facilities more, but costs are expected to rise as 2020 approaches.

“It’s a tricky balance when you’re looking to use the Olympics as a way to grow or redevelop the city,” says Constantine Kontokosta, assistant professor and deputy director at New York University’s Centre for Urban Science and Progress. “Cost overruns are always a problem.”

Rising costs of staging the Olympics have led to a shortage of cities willing to host the games, as highlighted by Norway’s decision last year to withdraw from the contest to stage the 2022 event. Sochi Winter Olympics in 2014 was one of the most expensive sporting events to date, with estimated costs at $51bn.

Proponents hope the economic benefits of hosting the games will outweigh the costs. Most economists only expect the event to boost Japan’s real GDP by an annual average of 0.3 per cent over the next five years, but improving sentiment is expected to spur consumer spending.

“Make no mistake, 2020 is the biggest chance that we have,” Mr Masuzoe says.

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