In a remarkable turn of events, the stock of Japan's century-old trading company soared by 9.2% following Berkshire Hathaway's announcement of a significant investment strategyThis surge created an intriguing contrast with the Tokyo Stock Exchange, which experienced a slight dip of 0.35% on the same dayThis seemingly paradoxical market behavior reflects the complex judgments made by global capital in response to Japan’s economic transformation and highlights Warren Buffett's deeper strategic considerations as the “Oracle of Omaha.”

Berkshire Hathaway’s connection with Japan began in earnest in 2020. At that time, Buffett acquired shares of five major trading companies for about 1,000 yen per shareAgainst the backdrop of a global pandemic, this move was criticized as merely “betting on Japan's sunset industries.” However, in hindsight, it appears to be a well-planned long-term investmentData indicates that by the end of 2024, Berkshire's total holdings in these trading companies will have a market value of ¥4.3 trillion, with a compound annual return exceeding 18%. Furthermore, the lifting of the shareholding ceiling from 10% to a "moderate ratio" is already changing the rules of the game in the Japanese stock market.

The stock price trajectory of Mitsubishi Corporation vividly mirrors the transformation of Japan’s trading companies

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Founded in 1870, Mitsubishi’s operations span from salmon farming in Hokkaido to liquefied natural gas projects in Qatar, and from soybean plantations in Brazil to television shopping channels in VietnamThis "octopus-style" expansion has shown remarkable resilience amid drastic fluctuations in commodity prices throughout 2023: the energy sector contributed 38% of profits, food operations grew by 12%, and digital transformation initiatives achieved returns as high as 25%. On the other hand, Mitsui & Co.'s CEO, Masaki Naito, revealed in a recent earnings report that the company is developing a “fourth-party logistics platform” that now connects with 32,000 small to medium-sized enterprises globally, forming a vast database asset network.

Buffett’s investment logic is clearly articulated in his annual letterHe emphasizes the "prudent capital management" of Japanese trading companies: over the past three years, the average dividend yield of the five major trading firms reached 4.2%, significantly higher than the 1.8% of the S&P 500; share buybacks cumulatively exceeded ¥12 trillion, yet the median executive compensation was only one-third of that of their American counterpartsThis "shareholder-friendly" governance model aligns perfectly with Berkshire’s value investing philosophyNomura Securities estimates that if Berkshire increases its shareholding to 15%, it could receive more than ¥120 billion in annual dividend income, effectively yielding about ¥3.3 billion daily.

The dramatic fluctuations in the yen exchange rate added an extra layer of complexity to this investment, generating additional foreign exchange income

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Berkshire’s issuance of ¥545.1 billion bonds in 2024 had an average coupon rate of only 0.85%. Meanwhile, the yen’s appreciation against the dollar, which rebounded from 145 at the time of issuance to 128, resulted in an exchange gain of ¥43 billionThis strategy of "borrowing low-interest yen to invest in high-dividend assets" has been dubbed “Buffett-style financial engineering” by Daiwa SecuritiesThe broader implication is that Berkshire’s actions are attracting global capital back to Japan: in 2024, net purchases of Japanese stocks by foreign investors reached ¥3.2 trillion, marking the second-highest annual total in history.

The transformation of Japanese trading companies is quietly reshaping the global industrial chain landscapeMarubeni’s collaboration with Berkshire on Duracell signifies a shift from being mere trading intermediaries to “industrial enablers.” By integrating technological resources from Berkshire’s precision casting companies, Marubeni dramatically reduced costs by 40% for its lithium battery recycling project in Thailand while increasing production capacity to 30,000 tons per yearSimilarly, Itochu Corporation is partnering with Berkshire’s Dairy Queen to establish a "cold chain logistics and retail terminal" network across Southeast Asia, planning to open 1,500 smart stores within three yearsThis model of "industrial synergy and capital operation" is rewriting the valuation logic of traditional trading companies.

Professor Hiroshi Nakao of the University of Tokyo states that Buffett’s investment essentially bets on “the certainty of Japan’s economic transition.” With the Bank of Japan ending its Yield Curve Control (YCC) policy and 10-year government bond yields surpassing 1%, the appeal of Japanese financial assets is experiencing structural changes

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More importantly, the “new capitalism” reform promoted by the Kishida government, which includes raising labor productivity and encouraging equity dispersion, is unlocking institutional dividendsAccording to Mitsubishi UFJ Research, if the average Return on Equity (ROE) of Japanese companies rises from the current 8.5% to 10%, the total market value of the stock market could increase by ¥150 trillion.

However, beneath this capital feast lies a current of undercurrentsThe diversification strategies of Japanese trading companies also harbor risksFor instance, Sumitomo Corporation's bauxite mining project in Guinea was temporarily halted due to environmental disputes, and Mitsui’s energy assets in Russia face pressures from Western sanctionsMore subtly, the U.SDepartment of the Treasury recently classified Japanese trading firms as “potential geopolitical risk points,” which may impact Berkshire's future investment strategiesWhen Buffett noted in his annual letter that "our commitment to Japan is for decades, not years," this 94-year-old investing legend might be penning one of the most patient chapters in the history of global capital.