Bank of Japan Warns AI Boom Could Leave Markets Vulnerable to Correction

Bank of Japan (BOJ) Deputy Governor Shinichi Uchida has highlighted how the global artificial intelligence (AI) boom is acting as a major positive demand shock, easing financial conditions and lifting asset prices. In a speech published on the central bank's website, Uchida noted that robust corporate spending and the adoption of new technologies are boosting economic activity and putting upward pressure on prices.

Uchida warned that elevated asset valuations could leave financial markets vulnerable to a sharp correction if expected AI-related corporate profits fail to materialize. He cautioned that markets could face a “snapback” if current valuations prove unsustainable. More accommodative financial conditions have been supported by rising stock prices and increased capital accumulation, while heavy corporate bond issuance has put upward pressure on long-term interest rates.

The BOJ said strong demand associated with advanced technologies was an important factor in its assessment of the economic outlook and monetary policy. Uchida also noted that AI could boost productivity and raise capital accumulation, potentially affecting Japan’s natural rate of interest. However, he said the BOJ was still assessing the technology’s broader economic impact and that it remained difficult to determine its overall effect on Japan’s natural rate of interest.

The central bank will continue to examine economic and financial data to establish a “consistent picture” of AI’s impact, Uchida said.