Japan frets over its ‘digital deficit’

“Digital deficit” has become a buzzword in Japan as the annual balance of payments deficit in digital services has more than doubled over the past five years to about ¥5.5 trillion ($34 billion) and imports of AI processors go through the roof. Amazon, Apple, Facebook, Google and Microsoft dominate the internet-based businesses, while Nvidia and other foreign companies provide Japan with advanced computing-related logic ICs.

Digital services include e-commerce and internet advertising, social media, generative AI, email, search and other internet services, smart phone and computer operating systems, application software and subscriptions, cloud computing and data storage and related consulting services.

Recent market research data show high market shares for

• Amazon in e-commerce (48.6%) versus Japan’s Rakuten (32.4%);
• Apple in cell phones (60.2%) versus Samsung (7.5%) and Sony (4.6%);
• Microsoft Windows (43.3%) versus Apple iOS (23.8%) and Google Android (16.3%); and
• Google Search (78%) versus Microsoft Bing (11%) and Yahoo! Search (10%).

Rakuten is the only Japanese company with a significant presence in these markets and it has been losing share to Amazon.

Japan’s digital deficit is almost as big as its total deficit in goods and services trade, which was ¥6.0 trillion in the fiscal year ended March 2024. It has grown bigger than inbound tourism revenue, which has been soaring due to the end of the Covid pandemic and the depreciation of the yen.

In an attempt to rectify this situation, Japan’s Digital Agency has come up with a detailed “priority policy program for realizing digital society.” The program aims to promote the use of data along with generative AI and other digital technologies in order to strengthen the