Bank of Japan Warns of AI Boom's Impact on Financial Markets
The global surge in artificial intelligence (AI) has acted as a major positive demand shock, easing financial conditions and driving up asset prices, according to Bank of Japan (BOJ) Deputy Governor Shinichi Uchida. In a speech published on the central bank’s website, Uchida highlighted how corporate spending and the adoption of new technologies are fueling economic activity and pushing prices higher.
Uchida warned, however, that financial markets could face a sharp correction if AI-related profits fail to meet expectations and current valuations prove unsustainable. He noted that equity gains and increased capital accumulation have made financial conditions more accommodative, while heavy corporate bond issuance by tech-linked firms has put upward pressure on long-term interest rates.
The BOJ views strong demand tied to advanced technologies as a key factor in its economic outlook and monetary policy. Uchida also pointed out that AI could boost productivity and accelerate capital accumulation, potentially influencing Japan’s natural rate of interest, the level at which monetary policy is neutral.
Despite these observations, Uchida emphasized that the BOJ is still evaluating the broader economic impact of AI and finds it challenging to determine its overall effect on Japan’s natural rate of interest. The central bank will continue to analyze economic and financial data to gain a clearer picture of AI’s influence.