Until 2020, Japan’s trading companies seemed a sprawling, unnecessarily complicated investment proposition, far from the streamlined pure plays that many global investors prefer. Then Warren Buffett came in.
Where others saw complexity in the hundreds of individual businesses owned by the companies and their cross shareholdings, Buffett saw value in ITOCHU ITOCY, Marubeni 8002, Mitsubishi 8058, Mitsui 8031, and Sumitomo 8316. “We simply looked at their financial records and were amazed at the low prices of their stocks,” he recounted in his 2025 letter to Berkshire Hathaway BRK.B shareholders. The five “very successfully operate in a manner somewhat similar to Berkshire itself.” The first investments were made in July 2019, and they seem destined to continue for years.
Like Berkshire, these are conglomerates involved in sectors like energy, metals, machinery, chemicals, food, and textiles, from upstream to downstream resource projects. “Like Berkshire they are typically looking at businesses from a longer-term perspective than private equity firms,” says Michael Makdad, who recently began covering the stocks for Morningstar. Unlike Berkshire, they don’t have a large insurance arm whose premiums would fund new investments. Rather, they use operating cash flow and funds generated from divestments.
Global Companies, Trade War Risks
The companies are also much more global than Berkshire. “This is by necessity,” Makdad explains. “Unlike Berkshire, which has lots of opportunities in the huge US domestic market, the Japanese trading companies’ role has often been to source resources overseas that are not available in Japan for Japanese manufacturers and consumers.”
That poses risks as the United States wages trade wars on the world. “Not too many companies in the world are like the Japanese trading companies, which are so global and in all kinds of businesses,” says Alicia Ogawa, director of Nippon Active Value Fund. Potential stumbling blocks include foreign exchange, tariffs, related sanctions, and negotiating a tricky path between China and the US. “So many big Japanese companies have to decide between one and the other [trading partner],” Ogawa says.
The US has levied 24% tariffs on Japanese exports, although these measures have been paused until July while the parties negotiate. There is currently a 10% universal tariff on Japan’s exports to the US and a 25% tariff on Japanese cars.
Nevertheless, these companies have other charms that may offset these disadvantages, such as increasingly shareholder-friendly policies of dividend boosts and stock buybacks. Cheapness is another. Buffett is especially drawn to the margin of safety granted by cheap yen borrowings.
Berkshire's Japan Bet
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So far this year, the ADRs for the shares are up an average of 16.9%, versus 6.0% for the Morningstar Japan Index and a loss of 0.7% for the Morningstar Global Markets Index. They’re up an average 17.5% a year since July 2019.
How Cheap Are Buffett’s Japan Companies?
Valuations for Japan’s trading companies continue to look good. The benchmark Topix Index fetches 14.25 times earnings and 1.35 times book value, according to Bloomberg. Itochu fetches 12.1 times earnings and 1.8 times book, according to Morningstar data. Marubeni trades at 9.03 times earnings and 1.13 times book. Mitsubishi is at 10.3 times earnings and 1.16 times book, Mitsui at 8.6 times earnings and 1.1 times book, and Sumitomo is at 10.6 times earnings and 0.9 times book. By way of comparison, even after this year’s tumble, the S&P 500 fetches 23 times earnings and 4.8 times book.
In terms of total yield, meaning dividend plus buyback, these names are also attractive. Itochu’s total yield is 4.32%, Marubeni’s is 4.75%, Mitsubishi’s is 7.84%, Mitsui’s is 7.25%, and Sumitomo’s is 4.58%.
Masakazu Takeda manages Hennessy Japan HJPNX, which owns Mitsubishi. He says, “Their shareholder return policies are consistent with Japan’s recent corporate governance reforms. They have a lot of investment holdings, ample cash flows, and lots of room to increase dividends and share buybacks.” Takeda says Buffett is also “expressing his positive view” on Japanese equities, which have climbed out of a long bear market.
It’s Nice to Borrow in Japan
Cheap money in Japan gives Buffett a margin of safety and makes the math look even better. US individuals don’t have this option, but Berkshire has boosted its yen borrowings at fixed rates. Buffett says he doesn’t have a view on foreign exchange, although at the end of 2024, Berkshire had $850 million of after-tax gains from the dollar’s strength. The Bank of Japan’s policy rate of 0.5% is among the world’s lowest. In October, Berkshire sold $1.9 billion of yen-denominated bonds. In April, it raised $628 million of yen bonds as the trade war with the US escalated, even as other multinationals withdrew their yen offerings.
“We like the current math of our yen-balanced strategy,” wrote Buffett in the annual letter. “The annual dividend income expected from the Japanese investments in 2025 will total about $812 million and the interest cost of our yen-denominated debt will be about $135 million.”
Buffett Plans to Buy More Shares
Most big investors don’t announce that they plan to buy more shares. But this year, Buffett did so in his letter. Indeed, Berkshire plans to keep the investment “for the very long term,” he wrote. “From the start, we also agreed to keep Berkshire’s holdings below 10% of each company’s shares. But, as we approached this limit, the five companies agreed to moderately relax the ceiling. Over time, you will likely see Berkshire’s ownership of all five increase somewhat. At yearend, Berkshire’s aggregate cost (in dollars) was $13.8 billion and the market value of our holdings totaled $23.5 billion.”
Berkshire has already boosted its holdings this year. In March, shares of the trading houses rose sharply after Berkshire disclosed that it raised its holdings by between 1.0% and 1.7%. It now owns 9.82% of Mitsui, 9.67% of Mitsubishi, 9.29% of Sumitomo, 8.53% of Itochu, and 9.30% of Marubeni. It now holds a stake of between 8.5% and 9.8% in the five companies.
Buffett continued: “As the years have passed, our admiration for these companies has consistently grown. Greg [Abel, Buffett’s designated successor] has met many times with them, and I regularly follow their progress. Both of us like their capital deployment, their managements and their attitude in respect to their investors. Each of the five companies increase dividends when appropriate, they repurchase their shares when it is sensible to do so, and their top managers are far less aggressive in their compensation programs than their U.S. counterparts.”
With the dozens of business lines that the trading companies command, there’s room for them to collaborate with Berkshire too. Until Berkshire’s disclosure, “the trading companies had no immediate catalyst in terms of business fundamentals,” says Takeda. “The valuations are getting cheaper and cheaper.” Book value, he notes, could be even higher if you account for unrealized gains on investment assets. “Ultimately, that’s what makes these stocks attractive.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
