The Bank of Japan is set to raise interest rates to a three-decade high on Friday, marking another landmark shift for a country long accustomed to near-zero rates and unconventional monetary policy.
The central bank is widely expected to raise short-term interest rates to 0.75% from 0.5% at its two-day policy meeting ending Dec. 19. While still low by global standards, the move adds weight to Japan’s growing conviction that the country has achieved a sustainable cycle of rising inflation and solid wage gains.
“There’s no gap in the view on the economy” between the government and BOJ, Finance Minister Satsuki Katayama told reporters Tuesday, signaling the administration’s tolerance for the hike.
With stubbornly high food costs keeping inflation above the BOJ’s 2% target for nearly four years, the rate increase reflects confidence in Japan’s economic trajectory. But it also raises questions about the future of the yen carry trade and what rising rates mean for investors who've followed Warren Buffett into Japanese equities.
Buffett’s Evolving Japan Thesis
Warren Buffett’s relationship with Japanese investments spans three decades of evolving conviction.
In 1998, during Japan’s “Lost Decade,” Buffett told University of Florida MBA students: “Berkshire Hathaway can borrow for 10 years at 1% in Japan. All I have to do is beat 1% and that’s all the money it’s going to cost me. So far, I haven’t found anything. Japanese companies earn very low returns on equity.”
Fast forward to 2020, and Buffett changed his mind. On his 90th birthday in August 2020, Berkshire Hathaway (BRK.A) (BRK.B) announced initial stakes of just over 5% in each of Japan’s five largest trading houses — Mitsubishi (MUFG), Itochu (ITOCF), Mitsui (MITSF), Marubeni (MARUF), and Sumitomo (SSUMF).
Today, those positions have grown to nearly 10% of each company, worth more than $30 billion combined, up from $23.5 billion at the end of 2024. During a 2023 trip to Japan, Buffett explained his rationale in a CNBC interview:
The five “sogo shosha” are Japan’s industrial powerhouses, with diversified businesses spanning energy, commodities, food, logistics, and more. Unlike fast-growth tech plays, these conglomerates offer stable cash flows and consistent dividends.
“I was confounded we could buy into these companies and have an earnings yield of 14%. The dividends actually grew 70% during that time, and the people were investing their money at a quarter of a percent or nothing.”
Buffett also revealed he’s been financing the bet with low-interest yen bonds, borrowing at about 0.5% while collecting much higher yields from dividends and buybacks. “We’ll be in these stocks 10, 20 years,” he said.
The Yen Carry Trade Risk
Rising Japanese interest rates are complicating the famous “yen carry trade,” in which investors borrow in low-yielding yen to invest in higher-yielding assets elsewhere.
As rates increase, this strategy becomes less attractive and could trigger unwinding, creating a cascade of market volatility.
Buffett has largely insulated himself from exchange rate fluctuations by issuing yen-denominated bonds to match his yen-denominated investments. But for investors without that hedge, rising rates could mean currency headwinds.
However, higher rates also signal Japan's economic confidence. The BOJ’s ad hoc poll released Monday showed most branch offices expect firms to continue robust wage hikes next year due to intensifying labor shortages.
How to Invest in Japan like Buffett
Individual investors have several options to follow Buffett into Japanese equities:
Japan-focused ETFs: Funds like the iShares MSCI Japan ETF (EWJ) or Franklin FTSE Japan ETF (FLJP) provide broad exposure to Japanese companies, including the trading houses. Both have gained more than 20% year-to-date.
American Depositary Receipts (ADRs): All five trading houses trade over-the-counter in the U.S. — Mitsubishi (MSBHF), Mitsui (MITSY), Itochu (ITOCF), Marubeni (MARUY), and Sumitomo (SSUMY). You can buy shares through regular brokerage accounts, though lower liquidity may push costs higher.
Direct share purchase: Some brokers allow direct purchase of Japanese shares, but expect higher fees when buying into foreign markets.
A New Era for Buffett’s Bet on Japan
Buffett’s initial skepticism about Japanese equities in the 1990s has transformed into one of his biggest international bets.
As the Bank of Japan signals confidence in its economy through rising rates, the opportunity that once confounded Buffett may be entering a new chapter — one where Japan’s economic normalization aligns with his long-term value investing strategy.
On the date of publication, Justin Estes did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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