Japan Update: Dalton Investments

My personal opinion is the Japanese market remains cheap globally. You've seen a rally due in large part to foreign inflows of funds. You've also seen a rally because tariffs are lower in Japan than almost any other developed market, except Europe and the UK. The Trump administration has given Japan a pass in my opinion, due in large part to the 50 to 60,000 troops that the United States has on Japanese soil and has had since World War II. 

So my personal opinion is that the Japanese rally is finally here. It is just beginning, and we're looking forward to many years to come of a strong Japanese equity market. 

Tariffs have been the largest sticking point for global investors in 2025. Japan has a unique geopolitical position and received, in my opinion, a pass by the White House. The reason for this, in large part, I believe, is due to the 50 to 60,000 troops that America has on the ground in Japan. This presence since World War II is a key reason why Japan, versus all other countries, would receive such favourable treatment. I think this is also a reason why the Japanese equity market is a place where foreigners have felt comfortable this year in placing their bets. 

Corporate reforms in Japan continue apace, due in large part to the TSE, the Tokyo Stock Exchange, the FSA, the Financial Services Administration, and METI, the Ministry of Economic, Trade and Industry. These three bureaucratic agencies at the heart of Japanese government bureaucracy have continued to push for reforms throughout corporate Japan. We really credit them with seeing the benefits for all shareholders through consolidation of industries, through greater transparency for all shareholders, and for holding management’s feet to the fire when it comes to corporate governance reforms. 

We have all benefited from these reforms, and we believe that these reforms will continue well into the future. We look forward to participating in them and helping Japanese management understand what the government bureaucrats are asking for. 

The major change in the portfolio since the last time we spoke has been a bid by Akio Toyoda, the great grandson of the founder of Toyota Group. Akio has really indicated his guts and willingness to consolidate the Toyota Group and has followed the bureaucrats’ focus on consolidating industries. So as a shareholder, we will benefit from his premium bid. The rest of our portfolio will likely receive bids over time, due in large part to the fact that we focus on companies that are trading at significant discounts to what private market values are. 

But we really want to send a message to Akio and tell him how much we appreciate his continued aggressive behaviour. And while we sell out to him today in the case of Toyota Industries, we look forward to purchasing other divisions of the Toyota Motor Group over time that will likely also be consolidated.