BOJ Warns of AI Boom Market Risks Despite Financial Easing

Bank of Japan Deputy Governor Shinichi Uchida has highlighted the dual impact of the global AI boom on financial conditions, cautioning that while it has eased constraints and boosted asset prices, risks remain if profits fail to meet expectations.

Uchida noted that widespread AI adoption has acted as a significant demand shock, lifting economic activity and asset valuations. He suggested the technology could enhance productivity and capital accumulation, potentially influencing long-term interest rates. However, he warned that financial markets may correct sharply if anticipated earnings do not materialize.

The BOJ official also pointed out that heavy bond issuance by AI-related firms is pushing up long-term interest rates, counteracting some of the easing effects. He emphasized the central bank's ongoing assessment of AI's broader economic impact, particularly its role in pushing inflation above the 2% target, which could necessitate further monetary tightening.

The BOJ has already raised interest rates twice this year, in June and September, responding to inflationary pressures from higher energy costs and a weak yen, which raises import expenses for Japan's nearly fully imported crude oil.