BOJ Official Warns AI Boom Could Fuel Market Correction Risk

Bank of Japan Deputy Governor Uchida has highlighted artificial intelligence as a major inflationary force, describing it as a significant demand shock that is pushing up prices and economic activity. Speaking recently, Uchida noted that AI has become a central topic in BOJ policy discussions, influencing key monetary policy variables such as the output gap and financial conditions. He emphasized that AI's immediate impact has been on the demand side, easing financial conditions through higher stock prices, though this comes with a risk of correction if corporate profits fail to materialize.

Uchida also pointed out that heavy bond issuance by AI-related companies has contributed to rising long-term interest rates, adding another layer to the financial market dynamics. While acknowledging the potential long-term benefits of AI, such as increased productivity and capital accumulation, he cautioned that its effects on labor markets could be mixed. The BOJ remains vigilant, closely monitoring economic and financial data to assess AI's broader implications.

Though Uchida did not provide specific guidance on interest rates, his remarks align with the BOJ's stance of continued tightening, tempered by the risk of market instability should AI-driven investment fail to deliver expected returns. The central bank's focus on AI underscores its role as both an economic driver and a potential source of financial volatility.