Bank of Japan Warns AI Boom Could Trigger Market Correction
Bank of Japan Deputy Governor Shinichi Uchida highlighted the dual impact of the global AI boom on financial conditions, noting its potential to ease conditions while posing risks of a market correction.
In a speech published on the central bank's website, Uchida described AI adoption as a significant demand shock that has boosted economic activity and asset prices. He suggested that the technology could enhance productivity and capital stock accumulation, potentially influencing a country's natural rate of interest.
While acknowledging the positive effects on financial conditions, Uchida cautioned that a market pullback could occur if expected profits from AI investments fail to materialize. He also pointed out that increased bond issuance by AI-related firms has contributed to upward pressure on long-term interest rates.
The Bank of Japan plans to closely monitor economic and financial data to better understand AI's overall impact, particularly its effect on Japan's natural rate of interest. The central bank has identified strong AI-related demand as a factor that could push underlying inflation above its 2% target, potentially necessitating further monetary tightening.