Michael Burry Flags Risks from Japan Yen to U.S. Stocks as ‘Rate Check’ Stirs Debate

Michael Burry Flags Risks from Japan Yen to U.S. Stocks as ‘Rate Check’ Stirs Debate

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Michael Burry Warns of Financial Risks from the Japanese Yen to U.S. Markets

Renowned investor Michael Burry – known for his accurate prediction of the 2008 financial crisis – has issued new warnings about potential financial risks that could impact both the Japanese currency and U.S. markets as a recent “rate check” provoked debate among economists and traders.

Background on the “Rate Check” and Market Concerns

The New York Federal Reserve recently reached out to trading counterparties to check the exchange rate between the Japanese yen and the U.S. dollar, a move that stirred debate and speculation across global markets. This inquiry came after a series of warnings from Japanese officials about the prolonged weakness of the yen, which has been causing economic concerns.

Japan’s government, which has been closely monitoring the situation, has indicated it may act in coordination with the United States to stabilize the currency. A joint agreement between finance ministers from both countries last September provides a framework for such cooperation.

Burry’s Warning: Yen Reversal Could Have Broad Implications

Burry stated on his Substack page that the Japanese yen is “long overdue for a trend reversal.” He explained that if the yen strengthens significantly and Japanese interest rates rise, it could lead to a reversal of capital flow trends that have supported U.S. markets.

Specifically, Burry warns that repatriation of funds from U.S. markets back to Japan in search of higher yields would represent a serious shift in investor behavior. In his view, this could negatively affect both U.S. stocks and U.S. government bonds. This is because higher interest rates in Japan combined with lower rates in the United States would make Japanese assets more attractive and U.S. assets less appealing to global investors.

Current Currency Movements and Market Reactions

Recent trading shows the dollar weakening against the yen after hitting highs near 159 yen per dollar, with the exchange rate moving down to around 154 yen. This reflects growing speculation that the yen may strengthen after a long period of weakness.

Market participants are closely watching this shift, as it could trigger significant volatility. A stronger yen would also have implications for global markets because many investors have built strategies around historically low Japanese interest rates and the carry trade—the practice of borrowing in low-yielding currencies like the yen to invest in higher-yielding markets.

Diverging Views: Morgan Stanley’s Take

Contrasting with Burry’s concerns, Michael Wilson, chief U.S. stock strategist at Morgan Stanley, shared insights after a recent trip to Japan. Wilson reported that many Japanese investors expect the yen to trade closer to 140–145 per dollar, a level that would suggest more moderate strengthening than Burry’s warning implies.

Wilson also noted that while a stronger yen may introduce short-term volatility, it could benefit Japanese equities in the long run. His team’s analysis suggests that the fair value for the USD/JPY pair may indeed be closer to that 140–145 range.

Impact on U.S. Equities and Broader Market Outlook

Despite differences in perspective, the global market is keeping a close eye on how currency movements may affect equity performance. The S&P 500, a key benchmark for U.S. stocks, recently closed lower for its second straight week, signaling investor caution amid these developments.

Wilson remains optimistic about U.S. equities overall, pointing to projected earnings growth and other favorable economic indicators. However, he did acknowledge that currency volatility—especially related to the yen—remains a risk that could affect investor sentiment and portfolio positioning.

What This Means for Investors

For global investors, Burry’s warnings serve as a reminder to consider currency risk and the interconnectedness of international financial markets. A significant shift in the yen’s trend could bring changes to capital flows, interest rate expectations, and asset valuations in both Japan and the United States.

Although Burry’s view is not universally shared, his reputation as an investor who anticipated past market disruptions has drawn attention to the potential risks highlighted by the current “rate check” and currency movements.

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