Today, I sit down with Rei Saito, the author of the Konichi Value newsletter. On Substack, Rei publishes insights into Japanese companies, real estate, and market trends with the goal of finding untapped value. With fluency in Japanese and English (and Swedish!), Rei has the added edge of being able to research Japanese news, reports, and sources. He brings this to you so that you may better understand the potential value that lies uncovered in the rising Japanese environment.
We discuss Warren Buffet’s recent acquisition of several Japanese conglomerates, Japan’s low-interest rate environment, unique drivers of Japanese real estate, cultural and behavioral changes, migration trends, and legal and tax obligations you need to know before you buy real estate in Japan.
The Genius of Warren Buffet’s Trade of Japanese Securities
For added context and analysis, I’ll quote investor and co-host of the All-In Podcast Chamath Palihapitiya about the Buffet trade, because I think it’s fascinating:
I was really curious about Buffett’s ownership of the Japanese trading companies and wanted to understand why he did it?
As it turns out, the trade is really brilliant.
He found a group of companies that had very low volatility, grew earnings predictably, had a good dividend yield and, in most cases, were buying back their stock.
But it’s what he does next which is so awesome:
As far as I can tell, he issues Japanese debt at very low rates, uses the proceeds to buy the stocks and then uses the dividends he then gets from owning these stocks (which are greater than the interest rates he’s paying to borrow in the first place) to pay the coupon!
What’s left over is a near-risk less bet where he’s borrowed trillions of Japanese Yen for free to buy billions of dollars of companies growing earnings in the mid teens.
And over a 10-20 year holding period, he becomes insensitive to currency vol and so really can’t lose money. He locks in the earnings gains over this period along with whatever spread he keeps between his dividends and his coupons.
The only way this trade blows up, I suppose, is if the Japanese economy totally craters but these companies are sufficiently exposed to the rest of the world that this outcome is pretty unlikely.
It’s inspiring to see folks act this intelligently at scale. That’s why he’s the GOAT.
I’ll add a few other important numbers below for those who, like me, are interested in property acquisition in Japan. Rei and I discuss these numbers on the podcast as well:
Capital Gains Tax on Property Sales in Japan
Short-term capital gains are applied on periods of ownership that are 5 years or less. Long-term capital gains apply for ownership over 5 years. Learn more from this online source:
Short-term capital gains: 39.63％
(National income tax 30.63％ + Local inhabitant tax 9％)
Long-term capital gains: 20.315％
(National income tax 15.315％ + Local inhabitant tax 5％)
Inheritance Taxes on Property Located in Japan
Check out this article, which I sourced, for more nuanced information. Here are the inheritance tax rates based on the amount received:
Up to ¥10 million: 10%
¥10 million – ¥30 million: 15%
¥30 million – ¥50 million: 20%
¥50 million – ¥100 million: 30%
¥100 million – ¥200 million: 40%
¥200 million – ¥300 million: 45%
¥300 million – ¥600 million: 50%
Over ¥600 million: 55%
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Links to Resources:
#43 How to Find Value in Real Estate and Companies in Japan