Netflix and other streamers are so popular in Japan that subscription fees are pressuring the yen

Japanese consumers are increasingly paying for Netflix and other overseas streaming services, and that's creating a "digital deficit," said Barclays.

• Netflix, Disney+ and other overseas streaming services are so popular in Japan that it's weighing on the yen, Barclays said. 
• The trend was the main driver in 2022 of Japan's largest services account deficit in 20 years. 
• "This 'digital deficit' appears to reflect a structural change in the behavior of consumers and businesses." 

Japanese consumers watching Netflix or listening to music on international streaming platforms need to pay for those pastimes, and Barclays says that outflow is weighing on the yen. 

An increase in payments to overseas tech companies for access to video, music and other entertainment streaming platforms was the key driver in 2022 of Japan logging its largest services account deficit in 20 years, Barclays said in a recent research report.  

The world's third-largest economy notched a "digital deficit" of 4.8 trillion yen ($34.6 billion), making up 89% of last year's 5.4 trillion yen services account deficit. 

"This 'digital deficit' appears to reflect a structural change in the behavior of consumers and businesses, suggesting it will persist. That implies an increase in yen-selling pressure," Barclays FX strategists Lhamsuren Sharavdemberel and Shinichiro Kadota said in the report. 

The yen has already suffered losses against the US dollar in 2023, falling 5% in value. That decline comes after the yen last year sank to its lowest against the greenback in more than 30 years, mainly stoked by the Federal Reserve's aggressive increase in interest rates compared with the Bank of Japan's decision to keep rates low. 

Meanwhile, demand for Netflix, Amazon's Prime Video, Disney+ and other streaming platforms accelerated during lockdowns at the height of the COVID pandemic, and growth continued into 2022.

Subscription video-on-demand platforms, mostly from the US, accounted for about 62% of the market share in Japan, well above the 38% share carried by Japanese companies. 

Japan's subscription VOD market may grow to 749 billion yen in 2027, which suggests payments to overseas companies will likely increase even if current market shares are unchanged.

Shifts by Japanese consumers to downloading music and books from buying albums and physical books are also feeding into the so-called digital deficit. 

But a "rapid recovery" in tourists traveling to Japan could lead to a narrowing of the services account deficit by 1.8 trillion yen this year, the strategists said.

They also projected the Japanese currency dropping to 123 in the first quarter of 2024 in part if the Bank of Japan changes its yield-curve controls, which have also weighed on the yen.