Digital Trade Deficit 2024 to Hit Record High, Expected to Surge to 2030

Japan has the largest digital deficit among members of the Organization for Economic Cooperation and Development (OECD), according to experts at Mizuho Bank.

Nhật Bản: Thâm hụt thương mại kỹ thuật số cao kỷ lục trong năm 2024, dự đoán tăng mạnh đến năm 2030

Foreign tech companies play a big role in Japan's digital transformation. (Source: Nikkei)

Japan’s imports of digital-related services are on track to exceed exports by more than 6 trillion yen ($39 billion) by 2024, a record annual trade deficit that highlights the need for companies to create more value from the costly digital transformation.

According to government trade balance data, the deficit, which includes cloud service fees, streaming licensing fees, online advertising and similar items, has increased from about 2 trillion yen in 2014 to 5.3 trillion yen in 2023. As of October this year, the figure has reached 5.4 trillion yen, and is adding about 500 billion yen to the total each month.

The deficit has been widening due to increased spending on streaming services like Netflix and advertising on search engines like Google. The expansion of remote work since the Covid-19 pandemic has also prompted more companies to adopt cloud services.

In October 2024, Japan's Ministry of Economy, Trade and Industry (METI) estimated that the digital deficit would continue to increase to around 10 trillion yen by 2030. If the figure exceeds the forecast, it could surpass the Northeast Asian country's crude oil imports, which totaled 11 trillion yen last year.

As Japan’s IT industry globalizes, the country is also attracting more foreign money for digital services. But domestic companies remain heavily reliant on large, mostly American tech companies that dominate areas like cloud services, leading to a growing deficit.

Mizuho Bank expert Daisuke Karakama estimates that in 2021, the US will have a digital surplus of $111.4 billion; the UK will have $69.2 billion; and the European Union (EU), excluding Ireland, will have $33.2 billion.

The figures are not directly comparable to Japan’s data because they include different items. But according to Karakama, the Land of the Rising Sun has the largest digital deficit among OECD members.

Japan's current account balance, which includes overseas trade and investment, is expected to reach a surplus of more than 20 trillion yen in 2023. Even as the digital deficit widens, the large primary income surplus Japan earns from overseas investments keeps the overall balance of payments positive.

However, the country has a deficit of nearly 10 trillion yen in goods and services, suggesting that Japan is not making and selling enough profitable products abroad to justify the cost of digital transformation.

The country's 2024 white paper on the economy and public finances said “the goal is not to reduce the deficit but to enhance the earning power of the country's potential growth sectors, such as the content industry, thereby encouraging the development of related services”.

As companies go digital, they should not only improve efficiency but also “link that to added value, such as developing new products and external sales channels for their products,” said Naoki Nishikado, an expert at the Mitsubishi Research Institute.

Mr. Nishikado sees prospects in sectors where Japan is already competitive, such as automobiles and industrial machinery, as well as domestic-market-oriented industries facing labor shortages, including nursing care and tourism .

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