An increasing flow of Japanese money overseas to pay for services like video and music streaming is turning into a structural weight on the yen, according to Barclays Plc.
Japan’s so-called “digital deficit,” stemming from payments to overseas technology companies like Netflix Inc. and Amazon.com Inc., has increased relative to trade and travel in its current-account balance and continued growth will pressure the local currency, strategists Lhamsuren Sharavdemberel and Shinichiro Kadota wrote in a note Thursday. It reached ¥4.8 trillion ($34.7 billion) last year, almost 90% of Japan’s services account deficit, they said.
Mounting demand for home entertainment during the pandemic has been sustained in the east Asian nation with the likes of Netflix, Amazon and Walt Disney Co. key beneficiaries, according to the report. That growth suggests outgoings to those and similar firms look set to climb, even if their market share remains unchanged, the strategists said.
Netflix launched a significant increase in Japanese content in 2021, including anime, live action and animated feature films.
“This digital deficit appears to reflect a structural change in the behavior of consumers and businesses, suggesting it will persist,” the Barclays team wrote. “That implies an increase in yen-selling pressure.”
The yen is on track to repeat as the second-worst Group-of-10 currency this year, falling more than 5% against the dollar amid receding speculation the Bank of Japan will deliver an early tweak to its super-easy monetary policy. The Japanese currency tumbled to a three-decade low last year as a significant trade deficit and widening interest-rate gap with the US weighed.
Still, while the services deficit is expected to put pressure on the yen, the Barclays strategists expect the increase in inbound tourism to Japan to counteract the weakness this year. Together with a combination of lower commodity prices and their expectation that the BOJ will tweak policy suggests dollar-yen could fall to 123 in the first quarter of 2024, they said. It traded around 138.30 on Friday.
“The digital deficit is a structural yen selling factor, but travel account improvement is likely to have a greater impact in 2023,” they said.
(Updates with additional context)