BOJ warns of AI market risks amid financial easing
Bank of Japan (BOJ) Deputy Governor Shinichi Uchida highlighted the dual impact of the global AI boom on financial conditions. On one hand, the surge in AI adoption has acted as a significant demand shock, lifting economic growth and asset prices. Uchida noted that this has made financial conditions more accommodative, as the demand-side effects have taken precedence. However, he cautioned that markets could face a correction if the anticipated profits from AI investments do not materialize.
Uchida also pointed out that while AI has bolstered stock prices, the massive bond issuance by AI-related firms has pushed long-term interest rates higher. The BOJ is closely monitoring these developments to assess the overall impact on Japan's natural rate of interest, which remains uncertain. The central bank has identified strong AI-driven demand as a factor that could push underlying inflation above its 2% target, potentially leading to further monetary tightening.
The BOJ has already raised interest rates twice this year, in June and September, responding to price pressures exacerbated by the energy shock from the Iran war and a weak yen, which inflates import costs. Japan, heavily reliant on crude oil imports, has been particularly affected by disruptions in the Middle East.