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. He noted that the surge in AI adoption has acted as a significant demand shock, pushing up economic growth and asset prices. However, Uchida cautioned that if the anticipated profits from AI investments do not materialize, markets could face a sharp correction.
Uchida acknowledged that AI's productivity gains and capital stock accumulation could influence a country's natural rate of interest. While the demand side appears to have softened financial conditions, the increased bond issuance by AI firms has raised long-term interest rates. The Bank of Japan (BOJ) is closely monitoring these developments to assess AI's overall impact on Japan's natural rate of interest.
The BOJ has identified strong AI-related demand as a factor that could drive underlying inflation above its 2% target, potentially requiring further monetary tightening. The central bank has already raised interest rates twice this year, in June and September, due to rising price pressures from a weak yen and energy costs linked to the Iran war. Japan, heavily reliant on crude oil imports, has been particularly affected by disruptions in the Middle East.