Berkshire Hathaway CEO Greg Abel said the company's strategy of raising debt in Japan remains appropriate, even as he acknowledged that a significant increase in interest rates could undercut the returns. The comments, made in a recent interview, reaffirm the conglomerate's commitment to a funding approach that has become a hallmark of its international operations.
The Yen Debt Play
Berkshire has been a regular issuer of yen-denominated bonds, using the proceeds to build stakes in Japanese trading companies. The strategy has worked well because borrowing costs in Japan have stayed low for years, and the yen's movements have sometimes added to the gains. Abel said the approach still makes sense, pointing to the potential for lucrative returns that the debt structure offers.
That's not a small thing. The yen bond market has been a reliable source of cheap capital for Berkshire, and the company has used it to fund investments in firms like the five major trading houses. The low rates mean Berkshire can borrow at a cost that's often below what it would pay in dollars, and the currency exposure can work in its favor when the yen weakens against the dollar.
The Rate Risk
But Abel didn't sugarcoat the downside. He said the risk arises if Japan's interest rates increase significantly. That would raise the cost of servicing the debt and could eat into the returns that make the strategy attractive in the first place. He didn't specify a threshold or a timeline, but the warning was clear: the strategy isn't risk-free.
Japan's central bank has kept rates ultra-low for years, but there's been talk of normalization. If that happens, Berkshire's yen debt could become more expensive to carry. Abel's comments suggest the company is watching that path closely, even as it continues to see value in the current setup.
What Could Change the Calculus
For now, Abel's stance is that the strategy still works. The company hasn't signaled any pullback from the yen market, and the comments leave the door open for further issuance. The next test will come when Berkshire next decides to tap the yen bond market, and whether the Bank of Japan's policy path shifts in a way that makes the debt less appealing.
Abel's remarks are a reminder that even a well-worn strategy carries risks. The yen debt play has been a quiet winner for Berkshire, but it's not immune to changes in the global interest rate environment. Investors will be watching to see if the company adjusts its approach if Japanese rates start to climb.
