Bank of Japan says AI boom may have eased financial conditions, warns of market risks
BOJ has identified robust AI-related demand as among factors that could push underlying inflation above its 2% target.
TOKYO - The Bank of Japan's Deputy Governor Shinichi Uchida stated that the global artificial intelligence (AI) boom may have eased financial conditions by boosting demand and pushing asset prices higher, but cautioned of potential market volatility if anticipated profits do not materialize. Uchida pointed out that the technology has significantly increased global adoption and could enhance productivity and capital stock accumulation, potentially impacting a country's natural rate of interest.
He suggested that the demand side had come first, making financial conditions more accommodative, but warned of a risk of correction if profits do not follow. While AI has raised stock prices and eased financial conditions, the central bank noted that excessive bond issuance by AI-related firms has increased long-term interest rates.
The Bank of Japan will continue to closely monitor economic and financial data to understand the full impact of AI, acknowledging that determining its overall effect on Japan's natural rate of interest remains challenging. The central bank had identified robust AI-related demand as one factor that could drive underlying inflation above its 2% target, potentially requiring additional monetary tightening.
In June and September, the Bank of Japan raised interest rates in response to the Iran war-induced energy shock, combined with the weakening yen, which increased import costs. Japan is a significant crude oil importer, relying predominantly on Middle Eastern sources before the Strait of Hormuz was closed.
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