Tokyo Market Rises on Nvidia Strength; Berkshire Boosts Stakes in Japanese Trading Houses

The Nikkei 225 extended its gains on Thursday, August 28th, driven by a positive reaction to Nvidia's earnings and significant moves by major investors like Berkshire Hathaway. Here's a breakdown of the key drivers and market movements.

Nvidia's Record Earnings and the China Factor

Nvidia (NVDA) reported stellar earnings for the May-July quarter, with revenue surging 56% year-on-year to a record $46.743 billion, surpassing market expectations of $46.05 billion. This was fueled by robust demand for its AI-related chips.

Despite the strong results, the stock dipped in after-hours trading, and the market focused on a significant detail: sales of the company's H20 AI chip to China-based customers were zero for the quarter. This was not a decline from previous levels, but a complete halt.

The situation highlights the ongoing uncertainty surrounding U.S.-China tech trade. While the U.S. government had initially restricted the H20 chip in April, it reversed course in July under a new condition: Nvidia must pay a 15% fee on sales to China. More recently, reports suggest Nvidia has asked some suppliers to halt production of the H20 due to Chinese authorities indicating a preference to exclude foreign GPUs.

The absence of Chinese sales in Nvidia's Q3 outlook underscores the lingering geopolitical risks. However, the company's ability to achieve 50% growth without this major market also demonstrates the overwhelming, global strength of AI-related demand.

Berkshire Hathaway Increases Stakes in Japanese Trading Houses

In a major vote of confidence for the Japanese market, Berkshire Hathaway (BRK) revealed its voting rights-based ownership in Mitsubishi Corp. (三菱商事) has surpassed the 10% threshold, reaching 10.23% as of today. This is up from 9.74% on March 10th.

The news triggered a significant rally in the sector, often referred to as the "Sogo Shosha" (総合商社):

• Mitsubishi Corp. (三菱商事) rose nearly 3%, hitting a new year-to-date high of 3,345 yen.
• Other major trading houses, including Itochu Corp. (伊藤忠商事) and Mitsui & Co. (三井物産), also saw strong buying, with several hitting new all-time highs.

This move follows Warren Buffett's announcement in February that Berkshire had secured approval from each company to raise its ownership above the previously agreed-upon ceiling of just under 10%. The market had anticipated such increases, and the confirmation provided a fresh catalyst for the stocks.

The "Buffett Effect" continues to buoy sentiment towards Japanese equities, encouraging broader investment in the market. As a major shareholder exceeding 10%, Berkshire's potential influence on the companies' strategic direction will be closely watched.

SOMPO's Major Acquisition: Aspen Insurance Holdings

Japanese insurance giant SOMPO Holdings (孫ホールディングス) announced a major overseas expansion move, agreeing to acquire U.S. specialty insurer Aspen for approximately 500 billion yen.

Aspen specializes in niche areas like directors' and officers' (D&O) liability insurance and coverage for cyber attacks. The acquisition is calculated to boost SOMPO's annual operating profit by roughly 20%, significantly strengthening its base in the massive U.S. insurance market, which accounts for over 40% of the global total.

The market reacted positively, viewing the large-scale acquisition as a proactive step for growth. SOMPO's stock price surged 6.5% at one point to a record high of 4,979 yen. Despite the substantial price tag, financial concerns were limited, with investors favoring the strategic growth move over immediate shareholder returns from the sale of policy-held stocks.

Looking Ahead: Key Factors for the September Market

As the market heads into September, several macro and political factors are in focus:

• U.S. Federal Reserve: Markets widely anticipate a 0.25% rate cut at the September 16-17 FOMC meeting. This is largely seen as a "preventive" measure rather than the start of an aggressive easing cycle. The subsequent pace of cuts remains uncertain.
• Bank of Japan (日銀): Speculation is growing that the BOJ could be moving closer to an interest rate hike, potentially as early as October. This is due to persistent inflation, an upward revision to Q2 GDP, and concerns about a weakening yen. The market will scrutinize Governor Ueda Kazuo's comments at the next policy meeting on September 18-19.
• Domestic Politics: Attention is turning to the upcoming leadership election within the ruling Liberal Democratic Party (LDP) and the future of Prime Minister Kishida Fumio's administration. Political instability could pose a headwind for stocks if it leads to negative perceptions from overseas investors.

These diverging monetary policy paths between the U.S. and Japan will be a central theme, influencing currency movements and sector rotations, particularly into high-dividend stocks ahead of the mid-term ex-dividend season.