Buffet & Japan
Berkshire borrows more Yen, Masterclass arbitrage.
Buffet released the 2024 Annual Letter today and what stroke to me was the short chapter about his Japan holdings. What really caught my eye was the mention about Berkshire increasing their Yen-denominated borrowing. They mention explicitly that it is NOT a play on exchange rates, claiming a currency-neutral stance.
Here’s the meat from the letter: Berkshire’s expecting $812 million in dividends from their Japanese investments in 2025. Those five trading giants they’ve been holding—Itochu, Marubeni, Mitsubishi, Mitsui, Sumitomo. Meanwhile, the interest on their yen debt? A measly $135 million. That’s a $677 million gap.
You might think, “Oh, they’re banking on the yen tanking,” especially with that $2.3 billion after-tax gain from dollar strength they’ve racked up, including $850 million in 2024. Nah, that’s just GAAP bullshit forcing them to scribble currency swings in the books. Buffett’s not popping champagne over that—he’s yawning. The real juice is in the borrowing cost versus the payout.
They’re borrowing yen on the cheap, dumping it into those Japanese firms, and watching dividends rain down like it’s a slot machine stuck on jackpot.
It’s not just about low rates, though. They’re matching yen debt to yen assets—dividends pay the interest and then some, no matter what the exchange rate does. That’s the “currency-neutral” bit: heads they win, tails they still win.
Buffett’s not treating this as a short-term maneuver. He expects Greg Abel and future leaders to maintain this Japanese position “for many decades.” That’s a strong vote of confidence in the durability of this setup. Japan’s low-rate environment and the reliable cash flows from those five firms aren’t fleeting anomalies—they’re systemic. Plus, Buffett hints at “working productively” with these companies down the line, suggesting strategic ties beyond mere dividends.
So why borrow in yen without a currency view? It’s not just that it’s cheaper—it’s that it’s a near-perfect arbitrage. Lock in low-cost, fixed-rate debt, deploy it into high-yield assets in the same currency, and collect the difference. The $677 million gap isn’t luck; it’s engineered. The $2.3 billion forex gain is incidental; the real win is the “current math” Buffett touts: $812 million in, $135 million out.