Tokyo – In a speech posted on the Bank of Japan’s website, Deputy Governor Shinichi Uchida highlighted the dual impact of the worldwide artificial‑intelligence surge on Japan’s economy. He described the AI boom as a “big positive demand shock” that has pushed up both economic activity and prices, creating a more accommodative financial backdrop.
AI demand softens credit conditions
Uchida explained that the surge in AI‑related investment has spurred demand for capital, lifted stock prices and generally made borrowing conditions easier for firms. “Tentatively, it appears the demand side has come first and made financial conditions more accommodative on balance,” he said.
Potential for a market correction
Despite the short‑term benefits, the deputy governor warned that the easing could be temporary. “But there is a risk of correction if profits do not follow,” Uchida cautioned, noting that a slowdown in AI‑driven earnings could trigger a pull‑back in asset prices and tighten credit.
Bond issuance adds upward pressure on rates
Uchida also pointed out that while equities have risen, the massive issuance of bonds by AI‑focused companies is pushing long‑term interest rates higher. This dynamic creates a mixed picture for the BOJ’s monetary stance.
Monitoring the natural rate of interest
The central bank continues to assess how AI‑related productivity gains and capital stock accumulation might affect Japan’s natural rate of interest. Uchida said the overall impact remains difficult to gauge, and the BOJ will keep a close eye on economic and financial data to form a “consistent picture” of AI’s influence.
Implications for inflation and policy
The BOJ has identified robust AI‑driven demand as one of several forces that could lift underlying inflation above its 2 % target, potentially prompting further monetary tightening. The bank already raised rates in June and September in response to price pressures from the energy shock caused by the Iran war and a weakening yen that raised import costs.
Energy context
Japan imports almost all of its crude oil, historically sourced from the Middle East. The recent closure of the Strait of Hormuz has added to concerns about energy security and price stability.
Looking ahead
Uchida emphasized that the BOJ will continue to monitor AI‑related developments alongside broader economic trends. The central bank’s vigilance aims to balance the benefits of technological progress with the need to safeguard financial stability and keep inflation on target.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
