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On February 25, Tokyo's stock market witnessed a phenomenon often referred to as the “Buffett Effect,” where the share prices of Japan’s five major trading companies surged collectivelyThe notable gains included Mitsubishi Corporation, which saw its stock rise by over 8%, marking its largest single-day increase in nearly three yearsOther companies, including Marubeni Corporation, Mitsui & Co., Itochu Corporation, and Sumitomo Corporation, also experienced significant gains.
The catalyst for this capital frenzy was the announcement made by the 94-year-old investment mogul Warren Buffett in his recent shareholder letter, in which he stated his intention to indefinitely increase holdings in Japan’s trading companies, indicating that his ownership has surpassed the 10% thresholdSince Buffett first placed his bets on Japan in 2020, the share prices of these five trading companies have climbed impressively, achieving a cumulative increase ranging from 80% to 230%, establishing themselves as some of the standout assets in his investment portfolio.
This six-year gamble on Japan conceals a sophisticated strategic logic beneath its surface, one that aligns with Buffett’s long-term investment philosophies and reflects a deeper understanding of the Japanese economic landscape.
Buffett’s investment strategy through his company, Berkshire Hathaway, began in earnest in August 2020, when he made headlines on his 90th birthday by announcing a staggering purchase of 5% stakes in Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo for approximately $30 billionThis disclosure took the market by storm, as these five conglomerates are seen as the hidden veins of the Japanese economy, controlling vital resources and industries:
This “from oilfield to table” integrated supply chain strategy enables these companies to maintain an average net asset return of 12% during fluctuations in global commodities projected for 2024. According to a Goldman Sachs report, the combined overseas assets of these five trading houses amount to a staggering $380 billion, equating to 68% of Japan’s foreign exchange reserves.
As Nobuhiko Kuramochi, Chief Economist at Nomura Securities, aptly puts it, “they are not just companies; they are extensions of national sovereignty.” During a time when these companies were experiencing depressed share prices due to trade friction with South Korea and pandemic impacts, Buffett identified a “ridiculously cheap” investment opportunity.
By the end of 2024, the average price-to-book ratio of these five conglomerates is projected to remain below 1.5, while offering dividend yields between 3% and 5%, significantly higher than the yields on U.S
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Treasury bonds during the same periodTake Mitsubishi as a case in point: its per-share free cash flow has steadily increased over the past four years, with fiscal year 2022 net profits reaching a historic high of ¥1.18 trillion (approximately $6 billion).
Analyst Hideaki Kurohara from Tokai Tokyo Securities emphasizes the stability achieved through the diversification of non-resource businesses such as retail and digital infrastructure, which Buffett regards as a crucial “moat.” In his 2025 shareholder letter, Buffett remarked that these companies are performing exceptionally well, drawing parallels between their operational strategies and that of Berkshire Hathaway itself.
Japan’s scarcity of resources and the heavy reliance of its 90% GDP on trade has engendered a unique “sogo shosha model”—an integrated approach to global resource procurement and supply chain management for profitThe president of Sumitomo Corporation stated, “As long as Japan exists, trade will never cease.” This business model resonates closely with Berkshire Hathaway’s “holding plus operations” strategy.
Moreover, the governance reforms instituted in Japan have yielded dividends for Buffett's investmentsBy 2024, corporate stock repurchases in Japan are anticipated to hit ¥16.8 trillion, with 46% of the profits from the five major trading companies allocated for dividendsCompared with the average dividend payout ratio of 31% among S&P 500 companies, Buffett praised this model as “a perfect example of capitalism—where the interests of managers and shareholders are highly aligned.”
Fast-forward to today, Berkshire Hathaway's investment has accrued an unrealized gain of nearly 70%. As of the end of 2024, the total investment cost for Berkshire’s holdings in the five trading companies stood at $13.8 billion, while the market value reached approximately $23.5 billionMore critically, Buffett has managed to achieve a “currency-neutral” position through the issuance of yen-denominated bonds, effectively sidestepping currency exchange risks.
Additionally, Buffett has revealed that the companies have agreed to “moderately relax” the previous 10% ownership limit, paving the way for Berkshire Hathaway to increase its holdings further
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