Warren Buffett’s big Japanese bet

Warren Buffett’s Berkshire Hathaway has invested aggressively in Japanese shares in recent years, with its vote of confidence helping to propel the benchmark Nikkei 225 index to new highs in 2023. 

Berkshire now owns more stocks in Japan than any other country aside from the United States. 

Japanese companies have steadily increased buybacks of their shares and dividends, which rose to a record level in 2022.

Earlier this year, Berkshire increased its holdings in five Japanese trading companies, including giants like Mitsubishi and Mitsui. 

Buffett said in an interview with Nikkei that he intends to increase Berkshire’s exposure to Japanese equities further in the coming years. 

The investment holding company has been buying up shares in the five trading companies since August 2020. 

They are essentially conglomerates that invest in all sorts of things globally, from mining to retail.

Buffett compared them to his own company in the interview, saying, “They are really so much similar to Berkshire. They own a lot of different things.”

The investments in Japanese companies also follow Buffett’s timeless investing philosophy, with the conglomerates generating strong cash flow and increasing their returns to shareholders through dividends and buybacks. 

Berkshire also leverages Japan’s extremely low interest rates to issue debt to buy Japanese shares effectively for free. 

In November, it raised the equivalent of $827 million from bonds denominated in Japanese yen, spurring expectations that he could put more money into the country. 

Berkshire raised its stake in five Japanese trading houses around the time of its previous yen bond issue in April. 

The company has around $7.6 billion in debt in Japanese yen. 

According to the Wall Street Journal, the company’s bonds currently have an average interest rate of 1.1%, while Berkshire’s Japanese investments have an average dividend yield of 3%. 

Former Prime Minister Shinzo Abe’s initiative to enhance corporate governance is yielding positive results. 

Investor activism is on the rise, increasing shareholder cash returns. Total payouts from share buybacks and dividends reached record levels last year, and 2023 earnings are on track to shatter those records.