Why did Warren Buffett’s Berkshire Hathaway issue six new yen bonds worth 90 billion yen?

In early April, Warren Buffett’s Berkshire Hathaway issued six new yen-denominated bonds worth 90 billion yen ($580 million). Funds from the issuance, while the smallest among deals dating back to 2019, could be used to deepen Berkshire’s stake in five major Japanese trading houses, according to Nikkei Asia’s correspondent Lisa Kim.

As reported by Cryptopolitan, Berkshire Hathaway’s 10th yen bond issuance was structured across six tranches, with maturities ranging from three to 30 years. 

Berkshire Hathaway’s relationship with Japan’s trading houses began in 2020, when it quietly disclosed significant stakes in five firms: Mitsui & Co., Mitsubishi Corp., Marubeni, Sumitomo Corp., and Itochu. By March of this year, Buffett increased Berkshire’s holdings in each to nearly 10%, fulfilling a plan he spoke about in his annual letter to shareholders in early 2025.

Yen bond issuance funds directed towards Japanese market investments

In his February 2024 letter, Buffett noted that Berkshire had financed most of its Japanese positions through 1.3 trillion yen in bond proceeds. With this latest 90 billion yen offering, Berkshire appears to be preparing to buy more shares if the opportunity arises.

Market chatter, cited by Kim, indicates that the newly raised funds could be earmarked for additional purchases in the five trading houses. Such investments would benefit from both favorable valuations and relatively high dividend yields compared to Japan’s subdued interest rates.

Japan’s interest rate remains at 0.5%, far lower than US levels. Companies listed in Tokyo, especially those with strong dividends and yields of around 3%, are appealing to international investors like Warren Buffett’s conglomerate.

However, the gap between Japanese and US interest rates is beginning to narrow. In recent months, concerns about an economic slowdown have raised expectations that the US Federal Reserve may cut rates in May. US Treasury yields, which surged to a 14-month high of 4.8% in January, are still well above 4.3%, and could need the Federal Reserve’s intervention.

Berkshire’s move to issue yen-denominated bonds and possibly reinvest the proceeds into Japanese equities may also be a hedge against volatile global bond markets.

Japan sets sights on local retail investors 

Berkshire’s bet comes as Japan actively tries to make its stock market more accessible to individual investors. The Tokyo Stock Exchange (TSE) recently called on listed companies to lower their minimum investment thresholds from 500,000 yen to around 100,000 yen.

A report released last week by a TSE advisory group asked trade officials to “create an environment conducive to investment for a diverse range of individuals.”

Foreign investors currently dominate Japan’s equity markets, holding about 32% of shares, compared to just 16.9% for domestic retail investors. Among Japanese investors, financial institutions account for 28.9%, with the rest split among business corporations, securities firms, and government entities.

Bureaucracy streamlined for inclusion

Japan’s equity market has a long history of excessive bureaucracy. Paper-based processes for trading and shareholder registry management drove up costs and created entry barriers. 

“Setting high investment unit levels was one way to reduce the manual processing cost and burden,” explained Zuhair Khan, senior portfolio manager at UBP Investments.

Khan added that until recently, the government preferred institutional investors over retail investors. However, with the memory of the 1990s market collapse fading among younger generations, officials now have a “change of heart.”

The government now sees the importance of participation from both sectors, hoping it will help boost household wealth and stop the overreliance on public pensions.

“After the bursting of the bubble, Japanese had high risk aversion and considered investing in the stock market as similar to gambling. Younger Japanese have no such aversion. The government and TSE want to make it easier for these young investors to save and invest,” Khan asserted.

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