Buffett, the “stock god,” may reissue Japanese yen bonds, becoming the first large-scale non-financial overseas issuer to issue Japanese yen bonds in the Japanese market after the Bank of Japan raised interest rates. Some people speculate that this legendary investment boss may invest more money in Japanese stocks.

On April 9, local time, the media quoted people familiar with the matter as saying that Berkshire Hathaway plans to issue Japanese yen bonds in the global market. The company has already hired banks to arrange the issuance of Japanese yen bonds. Depending on market conditions, this deal may be reached in the near future. Buffett's move has sparked market speculation, and he may be considering continuing to increase investment in Japan.

It is worth noting that net sales of Japanese stock spots and futures by foreign investors reached a six-month high at the end of March. According to data from the Japan Exchange Group, foreign investors sold 1.18 trillion yen (7.8 billion US dollars) of net stock spots and futures in the week ending March 29, the highest level since the last week of September last year.

As soon as news came out that Berkshire was about to issue Japanese bonds, the stock prices of the five major Japanese trading companies (ITOCHU Corporation, Marubeni, Mitsubishi, Mitsui, and Sumitomo), which Buffett favored, rose in response, boosting Japanese stocks. The Nikkei 225 Index closed up 1.08% to 39773.13 points, rising for 2 consecutive days. Mitsubishi Corporation and Mitsui & Co., Ltd. rose more than 3%.

The Bank of Japan announced its latest interest rate decision in March, raising the benchmark interest rate from -0.1% to 0-0.1%, the first rate hike since 2007. The 8-year negative interest rate era came to an end. Berkshire Hathaway will also become the first large-scale non-financial overseas bond issuer to issue yen bonds in the Japanese market after the Bank of Japan abolishes the negative interest rate policy.

According to media analysis, there are signs that Bank of Japan Governor Kazuo Ueda will not rush to raise interest rates again. Against this backdrop, the credit spread on yen bonds (that is, additional yield compared to the risk-free benchmark) has narrowed to the lowest level since September 2022. Investors now require a credit spread of about 52 basis points for corporate bonds, down from 67 basis points a year ago.

Buffett continues to increase the Japanese market

Buffett has been quite active in the Japanese market for the past two years. Since issuing its first Japanese yen bond in 2019, Berkshire has been one of the largest overseas issuers of Japanese yen bonds, choosing yen 32 of its past 40 bond issues. As of September of last year, Berkshire issued about 7.6 billion US dollars in yen bonds.

In addition to continuous debt issuance, in August 2020, Berkshire first announced that it had passively held 5% of the shares in Japan's “Big Five Trading Companies”, then revealed in June last year that it had increased its shareholding ratio to more than 8.5%. In a shareholder letter issued in February this year, Buffett revealed that Berkshire holds about 9% of the shares in these five companies.

Buffett said in a shareholder letter that diversified business, high dividends, high free cash flow, and prudent issuance of new shares are important reasons why it favors the five major trading companies:

The five companies, ITOCHU Corporation, Marubeni, Mitsubishi, Mitsui, and Sumitomo, all follow shareholder-friendly strategies. Since we began buying Japanese stocks, all five companies have reduced the number of tradable shares at attractive prices.

All five companies use only about 1/3 of their earnings for dividends, and the huge amount of money they keep is not only used to establish many of their businesses, but also to a lesser extent to buy back stocks. Like Berkshire, these five companies are reluctant to issue shares.

Furthermore, market prices for major currencies cannot be predicted, so Berkshire used 1.3 trillion yen bond proceeds to fund most of its positions in Japan.

Regarding how long he will hold it, Buffett stated in a shareholder letter that he will continue to hold shares in the five major trading companies for a long time. He previously revealed that Berkshire plans to hold these investments for 10 to 20 years.

The Big Five Trading Company is one of Buffett's most successful investments in recent years. Since Berkshire bought these five stocks in 2020, the average increase has more than doubled. The Japanese stock market made great strides, and the benchmark index Nikkei 225 surpassed the previous historical value of 38957.44 points in 1989, reaching a record high.

Currently, Berkshire's investment costs for these five companies total 1.6 trillion yen, and the year-end market value of the five companies is 2.9 trillion yen. As the yen depreciated in recent years, Berkshire's year-end unrealized dollar earnings were 61%, or $8 billion.

Editor/Jeffrey