"Stock God" buying again? Berkshire Hathaway launches a new round of yen bonds, leading to a rise in Japanese stocks with the five major trading companies following suit

"Stock God" Buffett may issue yen bonds again, becoming the first large non-financial overseas issuer to issue yen bonds in the Japanese market after the Bank of Japan raises interest rates, with some speculating that this legendary investment guru may inject more funds into Japanese stocks.

On April 9th local time, media cited sources familiar with the matter as saying that Berkshire Hathaway plans to issue yen bonds in the global market. The company has hired banks to arrange the issuance of yen bonds, and depending on market conditions, the transaction may be completed in the near future. Buffett's move has sparked market speculation that he may be considering further increasing his investments in Japan.

It is worth noting that foreign investors net sold a record amount of Japanese stocks and futures at the end of March. According to data from the Japan Exchange Group, foreign investors net sold ¥1.18 trillion (US$7.8 billion) of stocks and futures in the week ending March 29, reaching the highest level since the last week of September last year.

Upon the news of Berkshire's upcoming yen bond issuance, the share prices of the five major Japanese trading companies favored by Buffett (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo) rose, boosting Japanese stocks. The Nikkei 225 index closed up 1.08% at 39,773.13 points, rising for two consecutive days, with Mitsubishi Corporation and Mitsui & Co. both rising over 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%, marking the first rate hike since 2007 and ending an 8-year era of negative interest rates. Berkshire Hathaway will also become the first large non-financial overseas issuer to issue yen bonds in the Japanese market after the Bank of Japan cancels its negative interest rate policy.

Media analysis indicates that there are signs that Bank of Japan Governor Haruhiko Kuroda is not in a hurry to raise interest rates again. In this context, the credit spread of yen bonds (the additional yield relative to the risk-free benchmark) has narrowed to the lowest level since September 2022. Investors are currently demanding a credit spread of about 52 basis points for corporate bonds, lower than the 67 basis points a year ago.

Buffett Continues to Increase Exposure in the Japanese Market

In the past two years, Buffett has been quite active in the Japanese market. Since issuing its first yen bond in 2019, Berkshire Hathaway has been one of the largest overseas issuers of yen bonds, choosing yen in 32 out of its past 40 bond issuances. As of September last year, Berkshire had issued approximately $7.6 billion in yen bonds.

In addition to continuous bond issuances, in August 2020, Berkshire first announced passive holdings of 5% in the Japanese "Big Five" trading companies, and later revealed in June last year that it had increased its stake to over 8.5%. In the shareholder letter released in February this year, Buffett revealed that Berkshire holds about 9% of these 5 companies Warren Buffett stated in his shareholder letter that the important reasons he favors the five major Japanese trading companies are diversified businesses, high dividends, high free cash flow, and cautious issuance of new shares:

Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo all follow a shareholder-friendly strategy. Since we started acquiring Japanese stocks, these five companies have reduced the number of outstanding shares at attractive prices.

These companies only use about 1/3 of their earnings for dividends, retaining a huge amount of capital for building their various businesses and to a lesser extent for share buybacks. Like Berkshire Hathaway, these five companies are also reluctant to issue new shares.

In addition, the market price of major currencies cannot be predicted, so Berkshire Hathaway used the income from 1.3 trillion yen in bonds to fund most of its positions in Japan.

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

The investments in the five major trading companies have been one of Buffett's most successful investments in recent years. Since Berkshire Hathaway acquired these five stocks in 2020, the average increase has exceeded double. The Japanese stock market has been soaring, with the benchmark Nikkei 225 index surpassing its historical peak in 1989 at 38,957.44 points, reaching a new all-time high.

Currently, Berkshire Hathaway's total investment cost in these 5 companies is 1.6 trillion yen, and the year-end market value of the 5 companies is 2.9 trillion yen. With the recent depreciation of the yen, Berkshire Hathaway's unrealized year-end USD return is 61%, reaching $8 billion