"Chronic Deficit" in Travel Balance, Why Focus on Japan and China This Year [BOK Focus]

Chronic Deficit Since 2000, Widened to -$12.5 Billion Last Year
Japan Holds Absolute Share in 'Travel Payments', Attention on Impact of Yen Strength This Year
China's Economic Stimulus, Focus on Whether 'Travel Income' Recovers to Pre-COVID Levels

Can South Korea's chronically deficit travel balance expect a reduction in its deficit this year? The key lies with Japan and China. As the won-yen exchange rate approaches 1,000 won, the demand for domestic travelers' shopping trips to Japan, which had surged riding the wave of a weak yen, is likely to slow down. Money spent by Koreans overseas is recorded as 'travel payments,' a negative factor in the travel balance, so reducing this could decrease the deficit. In China's case, the effect of economic stimulus measures is expected to increase the number of Chinese tourists coming to Korea, boosting 'travel income.' The key point to watch is whether Chinese visitors opening their wallets in Korea will recover to pre-COVID-19 levels.

'Travel Payments' Absolute Scale in Japan, Interest in This Year's Yen Strength Impact

According to the Bank of Korea's Economic Statistics System (ECOS) on the 14th, South Korea's travel balance has been in chronic deficit since 2000. Annual travel balance deficits had been increasing, reaching as high as $18.3237 billion in 2017. After a pause due to COVID-19, the deficit grew again as air routes reopened, recording $12.52 billion last year?the highest in six years since 2018 ($16.5657 billion). Travel income, which counts money spent by foreigners in Korea, improved by $1.4223 billion (9.30%) from $15.2943 billion the previous year to $16.7166 billion last year. However, travel payments, which are larger in scale, increased by $1.5851 billion (5.74%) from $27.6335 billion to $29.2186 billion, widening the travel balance deficit.

Japan accounts for a large share of travel payments, a negative factor in the travel balance. According to the most recent data from 2023, Japan's travel payments amounted to $5.2122 billion, the highest among single countries. It is analyzed that this figure was even exceeded last year. According to the Korea Culture and Tourism Institute's Tourism Knowledge Information System, the number of domestic outbound travelers increased by 26.3% year-on-year to 28.69 million last year, with 8.6 million visiting Japan.

Japan holds a structural advantage in travel balance accounting. Koreans are relatively active in overseas travel, and Japan, as a representative nearby short-term travel destination, is frequently visited. After COVID-19, so-called 'revenge travel' surged, and combined with the weak yen effect, the number of Koreans visiting Japan increased sharply. As demand for travel to Japan grew, low-cost carriers expanded routes, creating further growth factors. On the other hand, the number of valid passports in Japan was only 20.64 million as of the end of 2023, about 17% of Japan's total population. In 2023, Japan's travel income in South Korea's travel balance was only $1.7175 billion.

The travel balance deficit continues this year as well. In January, the travel balance deficit was $1.675 billion, the largest monthly deficit since January 2019 (-$1.7177 billion), influenced by winter vacation and the long Lunar New Year holiday. Japan's travel payments had a significant impact here. Among 2.975 million domestic outbound travelers in January this year, 967,100 Koreans traveled to Japan, the highest monthly number of Korean visitors to Japan on record.

However, expectations are rising for a reduction in travel payments due to a decrease in domestic travelers to Japan over the year. This is because the yen has turned strong. A Bank of Korea official said, "In the short term, the seasonal factor of increased Japanese tourists coming to Korea around the end of Japan's fiscal year in March is expected to reduce the travel balance deficit," adding, "With changes in Japan's monetary policy, the yen's strength is likely to be supported, which could pressure a reduction in this year's travel balance deficit." However, the deficit reduction is expected to be limited due to structural advantages. The official explained, "While Japanese demand for overseas travel remains low, Korean demand continues," and "a meaningful reduction in the travel balance deficit will require an overall decrease in overseas travel demand."

China's Economic Stimulus, Focus on Whether 'Travel Income' Recovers to Pre-COVID Levels

Another key focus for gauging this year's travel balance deficit is China. China's prolonged economic downturn had weakened its influence on South Korea's travel income. However, China showed an active stance by releasing 150 billion yuan (about 30 trillion won) last year as part of the 'Yi Gu Huan Xin' fund for economic stimulus, and it is analyzed that this is bringing sunshine to Korean tourism demand this year. Even in 2023, when demand was sluggish, China's travel income in South Korea's travel balance was $4.9788 billion, the highest among single countries. The industry is hopeful for a recovery to pre-COVID-19 levels this year. In 2019, China's travel income was nearly double the 2023 figure, at $8.8992 billion.

Meanwhile, there is also a slight potential increase in China's travel payments. A variable is that China has been piloting visa-free entry for Koreans since November last year, increasing Korean travel to China. The number of Koreans visiting China last year was 2.31 million, more than double (115.6%) the previous year. The increase in visitors to China is continuing this year as well. According to data on 'Domestic Outbound Travelers by Destination' submitted by the Ministry of Justice to Park Eun-jung of the Party for National Innovation, from November last year to January this year, 647,901 Koreans visited China, a 60.6% increase compared to the same period last year (403,470). However, China's travel payments were about $1.941 billion in 2023, so it is analyzed that this will not create a noticeable impact.