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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