BOJ Sounds Alarm Over AI-Driven Inflation Risks in Japan

The Bank of Japan (BOJ) has expressed concern about the potential for lasting upward pressure on inflation in Japan due to rising demand for artificial intelligence-related goods. In its quarterly outlook report, the BOJ noted that global AI demand may exert a sticky and lasting influence on consumer inflation excluding fresh food and fuel.

The report also suggests that the positive global demand shock for AI-related goods is contributing to rising producer prices worldwide, including in Japan. The BOJ has raised interest rates to a 31-year high of 1% in June and has signaled its readiness to keep pushing up borrowing costs to combat mounting price pressures.

However, the report also notes that Japanese households as a whole benefit from higher interest rates due to their substantial deposits exceeding outstanding borrowing. The BOJ will scrutinize how the spike in producer prices could spread to consumer inflation before considering further rate hikes.