This week’s fierce global market crash began in Japan, where Warren Buffett has a large investment, but the damage was limited. Japan’s stock index, the Nikkei, plunged 12.4% on Monday, its worst day since “Black Monday” in 1987, triggering a domino effect worldwide. The selloff was triggered by a small interest rate hike by the Bank of Japan, which raised interest rates to a 15-year high and unwound the yen’s “carry trade.” However, the market recovered most of the plunge, dropping just 2.5% over the weekend. Buffett’s stocks initially plummeted as much as 30%, but recovered along with the broader market over the weekend. Buffett’s holding company, Berkshire Hathaway, owns 8% each of the five largest Japanese companies, Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo, with a total investment of about $20 billion. Mitsui was the worst performer this week, falling 6.2%, while Mitsubishi outperformed with a drop of just 1.7%. Japanese trading companies also reported second-quarter profits earlier this week, with most beating analysts’ expectations and maintaining their full-year guidance. Year-to-date, Itochu and Mitsubishi shares have risen more than 10%, while Marubeni, Mitsui and Sumitomo are up less than 10%. The Oracle of Omaha, whose book balances out at $8 billion, first began selling Japanese government bonds in 2019 and used the proceeds to fund Berkshire’s purchase of shares in five local mini-conglomerates, known as sogo shosha, which import everything from energy and metals to food and textiles into resource-poor Japan. Issuing yen-denominated bonds allowed Buffett to limit the currency risk of buying stocks overseas. Despite the yen’s strength over the past two weeks, the dollar has risen more than 30% against the yen since 2019. Berkshire Hathaway had unrealized gains of more than $8 billion on its five trading companies as of the end of 2023. Buy more? On his 90th birthday in 2020, Buffett revealed his initial 5% investment in each company. He said it took about 12 months to acquire the shares through periodic purchases on the Tokyo Stock Exchange. The 93-year-old investment guru has pledged not to increase his stake above 9.9% unless approved by each company’s board of directors. Given that his stake is currently around 8%, the legendary investor was likely picking up bargains during this week’s offerings. Omaha-based Berkshire Hathaway issued an additional $1.7 billion worth of yen-denominated bonds in April, suggesting that Buffett may be preparing to inject capital into Japan. Outside of Japan, Buffett was in a selling mood in the second quarter. Last week, it was revealed that Buffett had sold off a large amount of stock, including half of his Apple shares, amassing unprecedented cash for Berkshire Hathaway in the second quarter ahead of the global crash. Many Buffett watchers saw his prescient moves as a negative sign for markets and the economy.
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