CURRENCIES

Bank of Japan hikes rates:

The Bank of Japan (BoJ) raised the policy rate from 0.1% to 0.25%, with a 7-2 vote in favour.
This decision marks a 0.15% increase in the policy rate.

Bond tapering details:

The BoJ announced a gradual reduction of Japanese government bond (JGB) purchases, reducing Y400 billion per quarter.
Monthly JGB purchases will decrease to Y3 trillion from January to March 2026.

Monetary policy outlook:

The BoJ plans to continue raising the policy interest rate and adjusting monetary accommodation, aiming for a stable 2% inflation target.
Negative real interest rates are maintained to support economic activity.

Impact on Japanese Yen:

The yen initially weakened but later strengthened following the BoJ’s hawkish measures.
Speculation arose regarding potential FX intervention due to the yen’s appreciation after lower US CPI data.

Market reactions and considerations:

The relationship between FX markets and inflation is now more closely monitored, with particular attention to the USD/JPY exchange rate.
The 152.00 and 150.00 levels are critical points for observing potential bearish trends in USD/JPY.

STOCK MARKET

Meta’s Q2 earnings report:

Meta (META), parent company of Facebook and Instagram, is set to announce its second-quarter earnings, highlighting AI spending and advertising business performance.

AI spending and expense estimate:

AI investment is a key focus, with Meta CFO Susan Li previously increasing the full-year expense estimate to $96-$99 billion.
Investors are closely watching for returns on these tech investments.

Earnings and revenue expectations:

Expected earnings per share: $4.74, with revenue of $38.3 billion.
Previous year’s Q2 results: $2.98 EPS on $31.9 billion revenue.
Family of Apps revenue (Facebook, Instagram, WhatsApp, Messenger) expected at $37.7 billion, up from $31.7 billion last year.

Advertising revenue and market position:

Meta could benefit from election and Olympic advertising, potentially impacting overall ad revenue positively.
Continued growth expected in Reels as it competes with TikTok; Threads competes with X, though monetization remains uncertain.

Analyst perspectives:

Forrester’s Mike Proulx notes Meta’s strong position heading into Q2 earnings, expecting little focus on “the metaverse” or Horizon Worlds.
Jefferies analyst Brent Thill remains bullish, citing healthy ad budgets and strong Meta spend growth.

Reality labs and financial challenges:

Expected Q2 revenue for Reality Labs: $376 million, up from $276 million in 2023.
Reality Labs reported a $3.8 billion loss in Q1, facing challenges such as turnover and unclear direction.

Legal and regulatory update:

Texas Attorney General Ken Paxton secured a $1.4 billion settlement with Meta over allegations of improper use of Texans’ biometric data.

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