American business magnate Warren Buffett

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The Japan Times

BY ELIZABETH BEATTIE

STAFF WRITER

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Jun 30, 2023

In recent months, American business magnate Warren Buffett has made his case for Japan clear as he boosts investment in the market, with the 92-year-old Coca-Cola-drinking Berkshire Hathaway chairman buying into a number of Japanese trading houses. The play, which has coincided with a series of stock market reforms, has drawn global attention to the sometimes overlooked market.

American investment firms such as Bain Capital have also expanded their footprints in Japan since late last year, while hedge fund managers like Ken Griffin are looking to deepen their positions, but Buffett’s stature in the business world and emphatic comments mean his investments have carried extra weight.

“Warren Buffett is looking for investments globally, and he’s decided that Japan is the place to be,” said Graeme Knowd, president of consulting firm Knowd Advisory. “I think it reminds people that they should take another look at Japan and see if he’s seeing something that they’re missing.”

But there are deeper trends at play than prominent investors looking for opportunities, with the weak yen and geopolitical tensions looming large.

“Japan itself is trying to change some of the things that’s been sending foreign investors away from the country in the past,” said Takeshi Kitaura, a senior analyst at Bloomberg Intelligence, noting “the foreign investment crowd is seeing a dynamic change.”

Part of that is reforms to the Tokyo Stock Exchange that were implemented last year. Despite being criticized for not addressing fundamental issues, they are nonetheless part of a drive by the TSE to have companies improve their value. To that end, the bourse is pushing companies to improve their price-to-book ratio — a measure investors use to see if their stock prices are over- or undervalued.

In recent months, Berkshire Hathaway CEO Warren Buffett has made clear his case for Japan as he boosts investment in the market. | REUTERS

In recent months, Berkshire Hathaway CEO Warren Buffett has made clear his case for Japan as he boosts investment in the market. | REUTERS

But an even larger factor is likely to be the weakening of the yen, with some drawing parallels to the start of former Prime Minister Shinzo Abe’s signature economic policies in around 2012 and 2013, which triggered a depreciation of the yen and consequently ignited overseas interest in Japan.

“On the surface, it’s very similar at the moment — the interest in the equity market, the Nikkei, the Topix 33 year high, the yen weakening,” said Masamichi Adachi, chief Japan economist at UBS, who notes that this time the situation is different, with a raft of other factors at play — including companies taking a more active role in tackling matters like wage increases, positively affecting Japan’s macroeconomic health.

On Friday, the yen dropped as much as 0.2% to its lowest point since November.

Market players unconvinced that Japan’s moment has come think active government policy is required to sustain interest: Bank of America analysts have said the “buy Japan” call may be “premature,” instead suggesting 2024 might be Japan’s year, but with that being contingent on “confirmation of a virtuous inflation cycle in Japan and the government’s policy to promote domestic (capital expenditure) and inward (foreign direct investment).”

Still, wider geopolitical trends are also contributing to the case for investment in Japan.

At the same time as Buffett has sung the praises of Japan, he has expressed growing wariness around Taiwan’s situation, minimizing his stake in leading chipmaker Taiwan Semiconductor Manufacturing Co.

“I feel better about the capital that we’ve got deployed in Japan than in Taiwan,” he said in response to questions during an earnings call in May, the same month he said the decision to invest in Japan was “simple.”

Beijing views Taiwan as a breakaway province to be brought back into the fold — by force, if necessary. In April this year and August 2022, China staged massive military drills around the island.

Electronic quotation boards display the rate of the yen versus the U.S. dollar at a foreign exchange brokerage in Tokyo on Friday. | AFP-JIJI 

Electronic quotation boards display the rate of the yen versus the U.S. dollar at a foreign exchange brokerage in Tokyo on Friday. | AFP-JIJI

Buffett is not alone, with other investors growing wary of political risk in China. The country’s bond market has suffered from a dip in foreign capital, and meanwhile opportunities in other Asian markets are being examined more closely.

“The perception of China has deteriorated significantly from the short-term, medium-term and long-term (outlook),” Adachi said, noting that the country’s emergence from 2022’s stringent COVID-19 restrictions disappointed in the second quarter of this year.

While geopolitical tensions between China and the West have caused people to look for other investment destinations, some are also concerned about China’s economic situation, which they see as resembling Japan’s 1990s property market collapse, Adachi said.

In any case, Knowd says that concerns over regional tensions have shone a spotlight on Japan.

“If you’re reducing exposure to China, but still want exposure to a big market in Asia, Japan is where you’re going to be,” he said.