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The Japanese Sogo Shosha: How Buffett outsmarts currency risk with Japan's retail giants
From noodles to rockets: Why Warren Buffett is investing billions in these unique Japanese giants
When Warren Buffett, one of the greatest investment legends of our time, makes one of his biggest bets outside the US, the financial world takes a close look. His target: five seemingly inconspicuous, yet immensely powerful Japanese conglomerates known as Sogo Shosha. These trading giants—Mitsui, Mitsui, Itochu, Marubeni, and Sumitomo—are a global phenomenon unique to Japan and have formed the backbone of the nation's economy for decades.
But what makes these complex, highly diversified companies, whose businesses literally range from noodles to rocket components, so irresistible to a value investor like Buffett? The answer lies in a perfect blend of deep undervaluation, a strategic realignment brought about by Japan's corporate governance reforms, attractive dividends, and an ingenious financing strategy that minimizes currency risk. Buffett's investment is not a short-term trade, but a commitment to the next 50 years. This article delves deep into the fascinating world of Sogo Shosha, explains their unique business model, analyzes the reasons for Buffett's long-term confidence, and sheds light on the enormous potential that lies dormant in these quiet giants of the Japanese economy.
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Warren Buffett's Japan Bet: The Secret of the Sogo Shosha That Hardly Anyone Knows
The five largest Japanese trading companies have become one of Warren Buffett's favorite investment targets in recent years. These unique conglomerates, known as Sogo Shosha, represent a business model unique to Japan and have formed the backbone of the Japanese economy since the postwar period. With a total market capitalization of over four trillion yen and nearly half a million employees worldwide, these companies have grown into global giants that represent far more than just traditional trading companies.
The Sōgō Shōsha (Japanese: 総合商社, German: 'general trading company') are large Japanese trading houses that operate internationally.
What are the Japanese Sogo Shosha?
The term "Sogo Shosha" is a portmanteau of the Japanese words for "general" and "trading company," but it fails to capture the complexity and scope of these companies. These conglomerates function simultaneously as trading companies, investment companies, project developers, and risk management systems. Their business activities span virtually all industries and continents, from the procurement of critical raw materials to the operation of retail chains.
The five largest representatives of this category—Mitsubishi Corporation, Mitsui & Co., Itochu Corporation, Marubeni Corporation, and Sumitomo Corporation—form the core of Warren Buffett's Japanese investment strategy. These companies are characterized by their extreme diversification, extending both geographically and across sectors. With over 200 offices in more than 60 countries and a product portfolio of 10,000 to 20,000 different goods, they create global networks that encompass everything from noodles to rocket components.
The unique business structure of Sogo Shosha
Sogo Shosha's business model rests on two fundamental pillars: traditional trade and strategic business investments. While pure trade has historically been its core business, the emphasis has increasingly shifted toward long-term holdings and investments in recent decades.
In the trade business, these companies act as global intermediaries, coordinating complex supply chains and creating significant value. They leverage their extensive logistics networks, financing options, and market intelligence to facilitate transactions that would be impossible for smaller players. They often operate with extremely thin profit margins of as little as 1.5 percent, but compensate for this with massive volumes and economies of scale.
The area of business investments has gained significant importance in recent years. Here, Sogo Shosha acquires strategic stakes in companies along the entire value chain with the goal of increasing their corporate value and creating synergies. These investments are based on ongoing participation and involve the deployment of management expertise, human resources, information, and capital.
Business areas of the five major companies
Mitsubishi Corporation
As the largest of the five trading companies, Mitsubishi Corporation organizes its activities into eight main business areas. The Environmental Energy division encompasses both traditional and renewable energy projects, while Material Solutions develops innovative technologies and materials. The Mineral Resources sector focuses on the development and trading of critical raw materials such as iron ore and copper. Urban Development and Infrastructure focuses on large-scale construction projects and smart city initiatives.
The mobility sector includes investments in automobile manufacturers, logistics companies, and new transportation technologies. The food industry extends from raw material procurement to retail, while smart life creation focuses on innovative consumer goods and digital services. The energy solutions sector develops integrated energy systems and sustainable technologies.
Mitsui & Co.
Mitsui operates in six strategic business segments, with the energy sector accounting for the largest share, accounting for over 50 percent of revenues. The company has made significant investments in shale gas projects in the United States and is a leading player in liquefied natural gas. The metals sector focuses on iron ore, copper, and other critical minerals essential to global industrial production.
In the Chemicals division, Mitsui develops innovative materials and specialty chemicals, while Machinery and Infrastructure implements complex industrial projects worldwide. The Lifestyle division encompasses consumer goods, retail, and food. Information and Business Development focuses on digital technologies and new business models.
Itochu Corporation
Itochu divides its activities into seven different business areas. The traditional textile sector, in which the company has its roots, now encompasses high-tech fibers and fashion brands. In the food sector, Itochu is active from raw material production to retail, including a significant stake in the convenience store chain FamilyMart.
The machinery sector invests in industrial equipment and manufacturing technologies, while energy and chemicals encompass both traditional and renewable energy projects. General products and real estate cover a wide range of consumer goods and real estate developments. The growing ICT and financial services sectors position Itochu at the forefront of digital transformation.
Marubeni Corporation
Marubeni focuses its activities on five main segments. Food and consumer goods encompass the entire value chain from agricultural production to retail. The company has established strong positions in the global grain and meat industries. Chemicals and Forestry focus on sustainable materials and bioresources.
Energy and metals have traditionally been a focus, with investments in oil, gas, and mining projects worldwide. Transportation and industrial machinery include shipping, aviation, and complex manufacturing facilities. Energy projects and plant engineering develop customized solutions for energy infrastructure.
Sumitomo Corporation
Sumitomo organizes its business activities into six segments. Metal Products focuses on steel, aluminum, and specialty alloys for industrial applications. Transportation and Construction Systems encompasses infrastructure projects, shipbuilding, and construction equipment. Environment and Infrastructure develops sustainable solutions for water, waste, and renewable energy.
Media and Digital invests in telecommunications, content production, and digital platforms. Lifestyle-related goods and services cover consumer goods, retail, and healthcare. The Mineral Resources, Energy, Chemicals, and Electronics division represents the traditional core business, focusing on critical raw materials and electronic components.
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Warren Buffett's strategic investment
The structure of the positions since 2019
Warren Buffett began systematically building his positions in the five Japanese retail giants as early as 2019, but only made this strategy public in August 2020. This discreet approach enabled Berkshire Hathaway to acquire significant stakes at favorable valuations before the markets began to pay attention to these companies.
By 2025, Berkshire had steadily increased its stakes to between 8.5 and 10.23 percent in each of the five companies. The total value of these Japanese investments reached an impressive $23.5 billion by 2024, with an original total cost of just $13.8 billion. This represents an increase in value of approximately 70 percent, underscoring Buffett's foresight in identifying undervalued, high-quality companies.
Buffett's long-term perspective
In his shareholder letters, Buffett has repeatedly emphasized that Berkshire could hold these investments for the next 50 years, or possibly forever. This exceptionally long-term perspective differs fundamentally from the short-term focus of many investors and underscores Buffett's confidence in Sogo Shosha's sustainable competitive advantages.
The Japanese trading companies originally agreed to limit Berkshire's holdings to less than 10 percent. However, given the positive development and constructive relationship, they have agreed to relax this limit slightly, allowing Berkshire to further expand its positions.
The economic benefits of the Sogo Shosha
Diversification and risk management
Sogo Shosha's extreme diversification offers unique risk management advantages. These companies are geographically spread across more than 60 countries and are active in virtually all major industries. This diversification allows them to offset regional economic crises or industry-specific downturns with strong performance in other sectors.
The economies of scale of this global presence are considerable. When a Sogo Shosha trades millions of tons of raw materials, it can significantly reduce transportation costs and negotiate better terms with suppliers. These economies of scale are virtually unattainable for smaller competitors and create sustainable competitive advantages.
Integrated value chains
A particular advantage of Sogo Shosha lies in its control over entire value chains. Marubeni, for example, can produce grain, use it to make animal feed, raise chickens, and sell the resulting meat in its own supermarkets. This vertical integration enables multiple profit margins along the entire chain and reduces dependence on external suppliers.
This structure also offers considerable flexibility in the face of market changes. For example, if commodity prices rise, the Sogo Shosha can adjust their downstream activities accordingly, or vice versa. This adaptability is invaluable in volatile markets.
Financial strength and currency hedging
Buffett skillfully exploits favorable financing conditions in Japan to finance his investments. Berkshire has issued over 1.3 trillion yen in yen-denominated bonds to finance its Japanese positions. With Japanese interest rates at nearly zero percent, financing costs are minimal.
This currency hedge is strategically brilliant. While Berkshire benefits from the dividends of Japanese companies, which are paid out in yen, it can service its yen-denominated debt from these earnings. This eliminates currency risk and creates a natural hedge against exchange rate fluctuations.
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Undervalued and high dividends: Opportunities at Japanese retail giants
Corporate governance reforms as a catalyst
Tokyo Stock Exchange reforms
The Tokyo Stock Exchange launched comprehensive reforms in 2023 aimed at improving the capital efficiency of Japanese companies. Companies with a price-to-book ratio below 1.0 were required to submit plans to improve their return on capital or risk delisting. This initiative has led to a wave of share buyback programs and increased dividend payouts.
Over 90 percent of Prime Market-listed companies have now submitted corresponding plans, underscoring the seriousness of this reform. The stock exchange has also published a list of companies that intend to proactively work with institutional investors to improve corporate governance.
Shareholder-friendly policy
The Sogo Shosha have fundamentally improved their shareholder policies. Mitsubishi Corporation achieved a dividend yield of over 3 percent in 2025, while Mitsui achieved a return on equity of 12.4 percent. All five companies now offer stable dividend yields between 2.9 and 3.1 percent while simultaneously pursuing aggressive share buyback programs.
This development is particularly noteworthy given that Japanese companies have historically tended to hoard excess liquidity rather than return it to shareholders. The new governance standards have fundamentally changed this mentality, leading to a significantly more shareholder-friendly approach.
Valuation advantages and upside potential
Undervaluation as an opportunity
Japanese trading companies are still trading significantly below their book value, with price-to-book ratios below 1.0, while comparable US companies are valued at over 2.0. Morningstar analysts estimate an undervaluation of over 20 percent and see potential for corresponding returns as governance reforms progress.
This undervaluation is partly due to historical skepticism toward Japanese conglomerates, which were often viewed as inefficient and opaque. However, current reforms and improved transparency are beginning to change this perception, which could lead to a revaluation in the medium term.
Structural tailwind
Several structural trends support the long-term prospects of the Sogo Shosha. Japan has set a target of 120 trillion yen in foreign direct investment by 2030 and 150 trillion yen by the mid-2030s. These investments will largely flow through the Sogo Shosha's global networks.
The energy transition offers additional opportunities as trading companies shift their portfolios toward renewable energy, hydrogen, and critical minerals for electromobility. At the same time, global demand is increasing for the raw materials in which the Sogo Shosha have traditionally held strong positions.
Unique positioning in global trade
Architects of Globalization
The Sogo Shosha act as architects of globalization, with approximately 40 percent of their trade volume occurring trilaterally between other countries without passing through Japan. This intermediary role in global supply chains, particularly in Asia, gives them access to approximately 60 percent of Japanese exports to the Asia-Pacific region.
This position is particularly valuable in a world of increasing geopolitical tensions and supply chain restructuring. The Sogo Shosha can act as neutral mediators and maintain complex trade relationships, even when direct bilateral relations become difficult.
Berkshire-like business model
Buffett has repeatedly emphasized that he sees a similar business model in Sogo Shosha to Berkshire Hathaway. Both types of companies are diversified conglomerates with a long-term perspective, disciplined capital allocation, and a focus on operating cash flows rather than short-term profits.
This similarity makes Sogo Shosha particularly attractive to Buffett, as he intuitively understands its business logic and can assess its long-term value creation potential. The combination of proven business models and undervalued stocks perfectly matches Buffett's investment philosophy.
The role in Japan's energy transition
Investments in renewable energies
Japanese trading companies play a central role in Japan's ambitious energy transition. The country plans to increase the share of renewable energy to 50 percent by 2040, requiring over 150 trillion yen in public and private investment. The Sogo Shosha are strategically positioned to lead this transformation.
Mitsubishi Corporation is investing heavily in offshore wind projects, while Mitsui is developing large-scale solar farms and energy storage systems. Itochu is focusing on hydrogen technologies, and Sumitomo is focusing on smart grids. This diversification into promising energy technologies simultaneously reduces the company's historical dependence on fossil fuels.
Critical minerals and supply chains
The energy transition requires massive quantities of critical minerals such as lithium, cobalt, and rare earths for batteries and renewable energy technologies. The Sogo Shosha have already built up decades of expertise and investments in mining projects worldwide, making them perfectly positioned to benefit from this trend.
This positioning is particularly valuable as Western countries seek to reduce their dependence on Chinese supply chains for critical materials. Japanese trading companies can establish alternative procurement channels, leveraging their proven logistics and financing expertise.
Challenges and risks
Commodity price volatility
Despite their diversification, Sogo Shosha remains significantly dependent on commodity prices. Fluctuations in iron ore, copper, and energy prices can significantly impact earnings. Mitsubishi was positively impacted by rising copper prices in 2024, while Mitsui and Itochu suffered from falling iron ore prices.
Companies are continuously working to reduce their dependence on raw materials by expanding their non-resource segments. However, this transformation is a lengthy process, and short-term volatility remains a risk.
Geopolitical risks
As global companies, Sogo Shosha is exposed to various geopolitical risks. Trade disputes, sanctions, and political instability in key markets can impact their business operations. Recent developments between the US and China, as well as sanctions against Russia, have already had an impact on certain business areas.
On the other hand, this geopolitical uncertainty can also create opportunities, as companies need alternative supply chains and trade routes, which the Sogo Shosha can provide through their global networks.
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Dividends and shareholder returns
Attractive dividend yields
The five major trading companies all offer attractive dividend yields that significantly exceed the Japanese average. Itochu offers a total yield of 4.32 percent, Marubeni 4.75 percent, Mitsubishi 7.84 percent, Mitsui 7.25 percent, and Sumitomo 4.58 percent.
These high returns are backed by solid operating cash flows and are made even more sustainable by new corporate governance standards. Companies have increased their payout ratios while simultaneously launching aggressive share buyback programs.
Share buybacks as value drivers
Sogo Shosha conducted share buybacks worth 10 trillion yen in 2023, a fivefold increase from a decade earlier. These programs reduce the number of outstanding shares, thus increasing the remaining shareholders' share of the company's value.
What's particularly noteworthy is that these buybacks aren't coming at the expense of growth investments. At the same time, the companies have increased their capital expenditures to 3.7 trillion yen in 2024, demonstrating that they are prioritizing both growth and shareholder returns.
Technological innovation and digitization
Digital transformation
The Sogo Shosha are investing heavily in digital technologies to modernize their traditional business models. Itochu has made significant investments in IT infrastructure and data analytics to enable better market forecasting and risk management.
This digitalization enables companies to leverage their global networks more efficiently and identify new business opportunities. Artificial intelligence and machine learning are used to optimize trade flows and predict market trends.
New business models
Digital transformation is also opening up entirely new business models for Sogo Shosha. They are developing platforms for B2B e-commerce, digital logistics solutions, and even fintech services. These new areas can generate higher profit margins than traditional retail.
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Japan's silent giants: Why Sogo Shosha is now attracting investors again
Japan's economic renaissance
Japan is currently experiencing a remarkable economic renaissance, driven by corporate governance reforms and a renewed appreciation for shareholder returns. The Sogo Shosha are at the center of this development, benefiting from both structural reforms and their unique positioning in global markets.
Rising demand for electricity from data centers and artificial intelligence is creating new investment opportunities, while the energy transition is opening up long-term growth prospects. These trends play into the hands of Sogo Shosha's diversified business models.
Buffett's vision
Warren Buffett's investment in Japanese retail companies represents perhaps one of his most far-sighted investments. The combination of undervalued, high-quality companies, structural reforms, cheap financing, and long-term growth potential creates a unique investment opportunity.
The fact that Buffett is willing to hold these investments for 50 years or more underscores his confidence in the long-term viability and prosperity of these unique business models. For investors who wish to follow Buffett's philosophy, the Japanese Sogo Shosha offer a rare combination of security and growth potential in an increasingly uncertain world.
The Japanese retail giants are thus far more than mere relics of the past. They are dynamic, globally integrated companies perfectly positioned to thrive in a multipolar world. Buffett's confidence in these quiet giants could prove to be a masterpiece of long-term value creation, serving as a model for future generations of investors.
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