Bank of Japan Warns of AI-Driven Market Correction Risks

Shinichi Uchida, Deputy Governor of the Bank of Japan, has raised concerns about a potential stock market correction if investments in artificial intelligence do not deliver the anticipated profits for companies. Speaking on October 5 at the ECONDAT 2026 conference, Uchida acknowledged that AI has been a major positive force driving economic growth and pushing prices upward. However, he cautioned that the technology boom has also led to higher stock prices, making financing more accessible but also raising long-term interest rates through large-scale bond issuances.

Uchida emphasized that while the demand effect of AI has so far outweighed productivity gains, there remains a risk of market correction if expected profits do not materialize. He noted that central banks are now considering AI's impact on the current economic situation, marking a shift from previous conceptual discussions. The Bank of Japan is monitoring four key channels through which AI influences the economy: demand, financial conditions, supply, and the labor market.

Additionally, Uchida highlighted the dual impact of AI on workers, suggesting it could free people from routine tasks while potentially devaluing certain skills and exacerbating social inequality. The Bank of Japan has already incorporated global AI demand into its economic forecasts, expecting annual inflation to exceed 2% starting in the second half of the 2026 fiscal year. High oil prices and a weaker yen are also contributing to price growth.

Uchida's warning comes amid growing regulatory attention to AI company valuations and debt financing risks. The Bank of England recently noted an increased likelihood of financial system risks, including those related to AI and debt burdens. The Bank of Japan previously raised its key interest rate to 1.25% on September 18, citing heightened inflation risks.