Morning Bid: BOJ hikes, Fed next

A look at the day ahead in European and global markets from Ankur Banerjee

Investors in Europe will wake up to a volatile yen after the BOJ raised interest rates in a long-awaited move and a growing divide in the AI world following contrasting earnings from tech bellwether Microsoft and chipmaker AMD.

The Bank of Japan hiked the overnight call rate target to 0.25% from 0-0.1% by a 7-2 vote and laid out a detailed quantitative tightening plan that will reduce monthly bond buying in several stages to around 3 trillion yen as of January-March 2026.

The yen and the Nikkei were initially choppy, with bank stocks in Tokyo spiking higher. The yen was last at 152.73 per dollar.

Having started July wallowing near 38-year lows of 161.96 per dollar, the yen is now stalking a three-month high. The more than 5% rise in the month is the currency's first month of gains this year.

A slew of factors including likely official intervention, a sell-off in equities and a reassessment of popular carry trades have helped the yen rebound although the currency is still down 7.6% against the dollar for the year.

With the BOJ out of the way, investors will now be waiting for the Federal Reserve to indicate that rate cuts in the U.S. are around the corner even if the central bank stands pat on rates later on Wednesday.

The risk is, of course, that the Fed is unwilling to commit to rate cuts, with markets having already priced in 68 basis points of easing this year.

But before that, the euro zone's inflation report will be the main economic focus for the day and comes after data on Tuesday showed the economy in the region grew slightly more than expected in the three months to June.

Meanwhile, quarterly results from major tech firms are highlighting a divide in the AI landscape as chipmaker Advanced Micro Devices reported strong earnings and Samsung Electronics anticipated robust demand for chips in the second half of this year.

In contrast, Microsoft disappointed investors with its slow cloud growth suggesting that the payoff from the billions in AI investments may take longer than investors might have hoped.

Thus it remains to be seen whether chipmakers' strong results pull European tech shares higher or if lacklustre earnings from mega stocks drag them lower.

Key developments that could influence markets on Wednesday:

Economic events: Euro zone inflation for July

Earnings: Adidas, Danone and GSK

(By Ankur Banerjee; Editing by Jacqueline Wong)