Warren Buffett’s love for Japanese stocks: Will the Nikkei 225 cross all-time high after 33 years?

The Japanese equity market is witnessing a bullish trend. For the tenth week in a row, the Nikkei Stock Average, also known as the Nikkei 225, a leading index of Japanese stocks, reached a new high. The Nikkei 225 has gained about 30% so far in 2023, with the maximum increases happening in the past three months. After nearly 33 years, Nikkei 225 is attempting to surpass the record-breaking level of 38915 attained on December 29, 1989. Nikkei 225 is nearly 15% away from the all-time high level of the index.

Weakening of the yen due to easy monetary policies has increased foreign investments in its domestic market. As per the data by Tokyo Stock Exchange (TSE), foreign investors are increasing their investments significantly into Japan’s equities market.

Incidentally, Warren Buffett’s Berkshire Hathaway Inc. raised its stake in five of Japan’s trading houses to add to the momentum driving the Japan stock market to higher levels. In April Warren Buffett had announced that Berkshire’ will raise its holdings in Japanese companies.

Berkshire owns stakes in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp., an average of over more than 8.5%. Due to strong commodity prices and depreciating yen, the conglomerates reported a hike in profits for the previous fiscal year.

The Topix Wholesale Trade Index, which represents Japan’s largest firms by market capitalization, ascended by 39% this year majorly due to the stable inflation and better shareholders returns , along with Buffett’s investment.

Industry experts believe that the upward trend observed in Japan’s stock market is likely to be limited from now onwards as the market has already taken into account the additional purchases by Buffett.

Berkshire Hathaway intends to hold its investments in those five firms, planning to increase its investments up to 9.9% of any of the five Japanese firms. “The company will make no purchases beyond that point unless given specific approval by the investee’s board of directors,” according to the release.

(with inputs from agencies)