Michael Burry stated that the yen's trend reversal is long overdue, anticipating that capital repatriation will negatively impact US Treasuries and stocks. Morgan Stanley estimates the fair value for USD/JPY should be around 145, while also identifying foreign exchange volatility as a tactical risk for US equities.

Michael Burry, the real-life inspiration for the film "The Big Short," commented that the yen's trend reversal is significantly overdue. This comes as the Federal Reserve's recent "rate check" concerning the yen has sparked market debate over whether a stronger Japanese currency will impact the trajectory of US stocks.

Citing informed sources, it was reported that the New York Fed contacted potential counterparties for USD/JPY transactions last Friday. This action preceded a series of warnings from Japanese officials about the weak yen and their stated readiness to intervene.

Japan's Chief Cabinet Secretary, Minoru Kihara, stated on Monday that Japan will coordinate closely with the United States and act in accordance with the joint agreement reached by the two nations' finance chiefs last September.

Last Friday, the USD/JPY exchange rate surged to a high of 159, before retreating to below 154 on Monday.

In his Substack column, Burry remarked, "The yen's trend reversal has been overdue for far too long. This will trigger numerous chain reactions. US investors should be wary, as Japan's capital repatriation—reversing course to chase higher interest rates—will signal a major shift in capital flows."

Burry explained, "A simple logic follows: Japanese rate hikes combined with US rate cuts will create a bearish environment for US stocks and Treasuries. This is the inverse of the previous US-Japan interest rate dynamic that previously propelled US asset prices higher."

Morgan Stanley's chief US equity strategist, Michael Wilson, informed clients that he had just concluded a two-week research trip to Japan.

Wilson noted, "Notably, most investors we met in Japan believe the USD/JPY rate should at least return to the 140-145 range. They uniformly agreed that short-term volatility from a stronger yen would ultimately drive greater long-term gains for the Japanese stock market. Research from our FX team also indicates that, based on terminal rate pricing, the fair valuation for USD/JPY is closer to 145."

In contrast to Burry's view, Wilson expressed continued confidence in US equities. He believes S&P 500 constituent companies are poised for 17% earnings growth, suggesting that "broadening earnings contributions, coupled with a recovery in risk appetite, increased capital expenditure, and a rebound in economic activity" will support the US market. However, he acknowledged that foreign exchange market volatility is one of the tactical risks currently facing US stocks.

Last Friday, the S&P 500 index closed at 6915 points, marking its second consecutive weekly decline.