Bank of Japan Deputy Warns AI Bond Issuance Could Drive Long-Term Rates Higher

Bank of Japan Deputy Governor Shinichi Uchida highlighted the growing impact of artificial intelligence (AI) on monetary policy during a speech on October 5, 2026. He described AI as a "big positive demand shock" that is driving economic growth and inflation. However, he also noted that large-scale bond issuances by AI-related companies are pushing up long-term interest rates, creating tighter financial conditions.

Uchida outlined four key ways AI influences monetary policy: as a demand shock, through supply-side effects, by altering financial conditions, and by reshaping labor markets. He cautioned that while AI-driven stock gains are easing financial conditions, the bond issuances are counteracting this by increasing long-term rates. He emphasized that the net effect remains accommodative but carries a risk of correction if AI-related profits do not materialize.

The Deputy Governor acknowledged significant uncertainties, including the extent, timing, and degree of AI's impact. He stressed the need for balanced decision-making, neither overestimating nor underestimating AI's effects. He also pointed out that conventional economic statistics may struggle to keep pace with the rapid adoption of AI, suggesting alternative data sources could be valuable.

Uchida's remarks were part of the opening address at the ECONDAT 2026 Fall Meeting, focusing on AI, big data, and their implications for central banks. While he did not provide specific figures or policy decisions, he underscored the importance of ongoing discussions within the Bank of Japan and other central banks regarding AI's role in shaping monetary policy.