Lending Association

Tokyo’s Nikkei market surges in 2024: Warren Buffett’s Berkshire Hathaway benefits

Since the start of 2024, Tokyo’s Nikkei market has seen remarkable action, hitting 35 and achieving new 36-year highs in the first fortnight of trading. The Nikkei Index soared by 6.6% just last week, driven by persistently high inflation and the yen’s ongoing depreciation against the greenback—a traditional stimulant for Japan’s exporter-dominated market.

On Monday, the index rose by almost 1%, reaching just over 35,600. However, it remains a considerable distance away from its all-time high of 38,195, which was reached in December 1989. Subsequently, the index experienced declines on Tuesday, Wednesday, and Thursday.

Over the past year, the Nikkei has surged by an impressive 38%, nearly doubling the 20% gain of the S&P 500. Notably, Warren Buffett’s Berkshire Hathaway has been capitalizing on the Japanese boom, thanks to a strategic move made three years ago to accumulate shareholdings in Japan’s five major trading houses: Mitsubishi, Mitsui, Marubeni, Sumitomo, and Itochu.

Last June, Berkshire Hathaway announced that its wholly-owned subsidiary, National Indemnity Company, had increased its stake in these five Japanese trading firms to an average of 8.5%. Berkshire has expressed its intention to hold these Japanese investments for the long term and will limit its ownership in any of the five firms to 9.9%. As a result, Berkshire has become the largest single shareholder in these five companies, which collectively hold a value exceeding $256 billion.

Berkshire initially purchased these stakes in 2020 for just over $6.2 billion. Today, the value of these shareholdings has surpassed $21 billion, and Berkshire has been financing them through yen bond issuances in Japan, with interest payments covered by dividend income from the holdings. Impressively, 32 of Berkshire’s last 40 bond issues have been executed in Japan, providing the company with a natural currency hedge.

In another significant deal, Berkshire Hathaway acquired the remaining 20% of Pilot Travel Centers from the Haslam family, who held a put option exercisable within 60 days starting in January. Legal disputes ensued over the option, with allegations that Berkshire had manipulated Pilot’s accounting systems to lower the price. Fortunately, the two parties reconciled just days before a Delaware court action was scheduled to begin. While the exercise price remains undisclosed, Berkshire initially paid $2.8 billion for a 38.6% stake in the truck-stop operator in 2017 and subsequently invested an additional $8.2 billion to increase its stake to 80% a year ago this month.