The Comeback Nobody Expected
For 30 years, Japan was the cautionary tale — the economy that proved bubbles have consequences. The "Lost Decades" became economic gospel. But something has changed. Warren Buffett invested $13 billion in Japanese trading houses. The Nikkei hit all-time highs. Corporate governance reforms are unlocking shareholder value. And the weak yen is making Japanese exports hyper-competitive. Japan is back.
What Changed
Corporate governance revolution: Tokyo Stock Exchange told companies with price-to-book ratios below 1.0 to "explain or improve." Companies are buying back stock, unwinding cross-shareholdings, increasing dividends, and actually caring about shareholder returns for the first time in decades.
The Buffett signal: When Buffett allocates $13 billion to a market, the world pays attention. His Japanese trading house investments (Itochu, Mitsubishi, Marubeni, Mitsui, Sumitomo) are up 100%+ since purchase. These companies trade at 8-12x earnings with 3-4% dividend yields — value that doesn't exist in US markets.
Weak yen advantage: The yen at multi-decade lows makes Japanese exports cheaper globally and Japanese assets cheap for foreign buyers. Toyota, Sony, and Nintendo are printing money on currency alone.
The Geopolitical Angle
Japan is rearming for the first time since WWII. Defense spending doubling to 2% of GDP. Why? Taiwan. Japan's southern islands are 60 miles from Taiwan. A Chinese invasion of Taiwan is existentially threatening to Japan. This military buildup benefits Japanese defense contractors and positions Japan as a critical US ally in the Pacific.
How to Invest
EWJ: iShares MSCI Japan ETF. Broad exposure. Simple. DXJ: WisdomTree Japan Hedged Equity. Hedges currency risk — if you think the yen will weaken further. Individual stocks: Toyota (TM), Sony (SONY), Hitachi, Keyence. Or follow Buffett into trading houses through Japanese ADRs.
