Warren Buffett’s Berkshire Hathaway Upping Japan Bets Has A Dark Side

The lifeline that Warren Buffett just handed Shigeru Ishiba couldn’t come at a better moment for the beleaguered Japanese prime minister.

Buffett’s plans to up Berkshire Hathaway’s stake in five of Japan Inc.’s most fabled trading houses wasn’t a huge surprise. But the timing of Buffett’s “halo effect” on Tokyo shares — and hopes that bigger bets may be in the cards — sent Itochu, Marubeni, Mitsubishi Corp., Mitsui & Co., Sumitomo Corp. and related companies skyward.

The globe’s most revered value investor began his flirtation with Asia’s second-biggest economy in 2020. That year, Buffett announced his first notable Japan bets. They targeted old-school “sogo shosha” trading conglomerates that most global punters viewed as corporate dinosaurs.

The fact Buffett surprised Japan amid the Covid-19 crisis turned heads with even greater velocity. Yet as that flirtation approaches love-affair territory, Ishiba’s beleaguered government couldn’t be happier.

Ishiba’s Liberal Democratic Party hasn’t had much to celebrate in recent months. The economy ended 2024 with inflation outpacing wage gains. The Bank of Japan is tightening, shocking a system that has relied on zero interest rates since 1999. Now, it’s also dawning on voters how much of a dud Ishiba’s February 7 summit with U.S. President Donald Trump ending up being.

Initially, Team Ishiba tried to sell it as a win. Suggestions that Ishiba had secured a deal for Nippon Steel to invest big in U.S. Steel proved exaggerated. Ditto for hopes Ishiba could save Japanese automakers from Trump’s wrath. Japan Inc. is now bracing for a barrage of tariffs — perhaps even higher taxes than those slapped on China.

Also, the promise that former Prime Minister Shinzo Abe claimed he won from Trump in 2019 not to hit Japan’s auto industry is also kaput. The U.S.-Japan trade pact that the late Abe signed with Trump 1.0 was meant to be implemented “based on mutual trust.” Well, not so much as Trump 2.0 mulls rocking Japan’s year with 25% levies on cars and trucks.

All this has Ishiba’s approval rating wallowing in the 30s or low 40s, at best. Not where the ruling LDP wants to be with a July national election approaching fast and 4% inflation slamming consumer sentiment.

Enter Buffett, who’s given Tokyo something to celebrate for a change. Yet there are two important caveats here worth pointing out. One is that Buffett is playing it remarkably safe, while actively avoiding the “new Japan” investments that the man often called Japan’s Buffett — SoftBank Group founder Masayoshi Son — is championing in real time.

As Buffett sticks with cash-rich conglomerates, some of which date back to the 1850s, Son is putting Japan front-and-center in the global artificial intelligence race. There he was at the White House on January 21, going big along with OpenAI’s Sam Altman and Oracle’s Larry Ellison on a $500 billion Al infrastructure project.

The point isn’t that Buffett must invest in AI-related or adjacent companies. But Japan needs a more vibrant pool of disruptive startups that create good-paying jobs and fresh wealth to strengthen competitiveness, boost domestic demand and raise living standards. And that requires pulling in vastly more overseas capital from the biggest of the big money — like Buffett and his ilk.

Buffett isn’t here to make a killing, but to recreate in the aggregate a reasonably-lucrative version of Berkshire Hathaway in predictable, low-risk Japan. The real fireworks — and the real financial impact — would come if Buffett were to spread his wings and begin betting on, say, Japanese tech companies, particularly in the semiconductor space. Or startups with the potential to disrupt a rigid, aging economy.

The second caveat: Ishiba’s party is doing absolutely nothing to reanimate Japan’s animal spirits to prod the Buffett’s of the world to go bigger on the place.

Abe didn’t do it from 2012 to 2020, even as Buffett’s money began arriving on his watch. Nor did Abe’s successor, Yoshihide Suga, from 2020 to 2021. Fumio Kishida, prime minister from 2021 to 2024, didn’t. And Ishiba, who took the reins in October, hasn’t put a single economic reform in motion.

Buffett doubling down on Japan offers Ishiba’s team a window of opportunity to regain some reformist momentum. Why not lean into Buffett’s growing interest in Japanese investments? And while Ishiba’s party is at it, why not also step up efforts to win more investments at home from Son, the globe’s most important venture capitalist?

The irony about Japan’s Buffett is that Son’s $100 billion Vision Fund doesn’t invest a whole lot in Japan. In recent years, Son’s billions have found their way to China, India, South Korea, Indonesia, Bangladesh, Brazil, Kenya, Israel and elsewhere to harness the growth of tech “unicorn” startups. In Japan, Son tends to deploy big investments sparingly.

There’s no better time to change this dynamic than today. But that requires Japanese policymakers doing more than order up some tweaks to corporate governance. Abe’s efforts to prod Japan Inc. to increase shareholder returns, diversify boardroom and boost dividends are indeed paying off.

Last year, they propelled the Nikkei 225 Stock Average to all-time highs. Unfortunately, though, the wealth isn’t trickling down to average workers.

To reassure the Buffett’s of the world, and win more of their cash, Tokyo must reduce bureaucracy, level playing fields, incentivize a startup boom, increase productivity, loosen labor markets and empower women to enliven growth and create new wealth for a critical mass of Japanese. One doesn’t need to be an oracle to know Tokyo lawmakers aren’t acting fast enough.